Mortgage Tips: Pre-Qualified vs. Pre-Approved - What's The Difference?
Without thoughtful preparation, a home buyer may get drawn into the mistaken notion that if a mortgage lender “pre-qualifies” them for a mortgage this means that they have been “pre-approved” for a home loan. Unfortunately, there's a world of difference between these two terms. If you've ever been confused by the two, we'll bring you up to speed on how these terms differ - and why a misunderstanding can mean disaster for buyers and sellers alike.
- Pre-qualifying is the initial step in the mortgage approval process.
- Is generally free, quick and simple.
- Can be done in person, over the phone or internet.
- Buyer supplies data to lender regarding their debt, income and assets.
- Upon evaluating data, lender gives an opinion of the buyer’s loan limits.
- Loan pre-qualification does not include an analysis of the buyer’s credit report or an in-depth look at the buyer’s ability to purchase a home.
- The pre-qualified buyer does not carry the same weight as a pre-approved buyer.
- Getting pre-approved is the 2nd step of mortgage qualification and is much more involved.
- Buyer completes an official mortgage application (usually pays an application fee).
- Buyer supplies the lender with written documentation to perform an extensive check on the buyer’s financial background and credit score.
- Following analysis, lender can quote a specific mortgage maximum, interest rate and type of loan/s the buyer qualifies for.
Advantages of Pre-Approval:
- Buyer is aware of their maximum loan limits and the type of loan program they qualify for.
- Buyer is aware of down payment requirements.
- Buyer is aware of the lender limits on seller paid concessions.
- Buyer doesn’t waste time looking at properties that are beyond their qualifications.
- Enables the buyer to quickly submit an offer when the perfect property is located.
- Offers won't be contingent on buyer obtaining financing, which saves valuable time.
- Seller knows buyer’s offer is serious and likely to successfully close on time.
- Prevents the buyer from losing out to another competing buyer who is pre-approved.
Final Step – Loan Commitment:
- Once a buyer’s offer is accepted and fully executed, the buyer will complete their loan application and move towards the final step which is the “loan commitment”.
- Home is appraised at this point.
- Appraisal price must come in at or above the property’s sale price.
- If the appraisal brings up issues such as; structural problems, accessibility issues, outstanding liens or litigation in progress, the lender may require additional information, remedies and appraisal re-inspection prior to issuing their final commitment.
- Buyer’s income and credit profile will be checked once again to ensure nothing has changed since the initial approval.
As you can see, buying a home is a complex task! Make sure to enlist the assistance of an experienced Realtor at Acuity Group! We promise to represent your best interests from start to close!
Ready to Buy a Home? Click HERE for Expert Home Buyer Assistance
Acuity Group Real Estate Professionals
564 Dodge Ave Suite A
Elk River MN 55330
OUR SPECIALTIES: Residential & Commercial Seller and Buyer Services, Property Management & Residential Rentals, Residential and Commercial Investment Property Specialists, Listing & Marketing Specialists, CDPE (Certified Distressed Property Experts), Short Sale Specialists, REO/Bank Owned Sales. Golf course properties, water front properties, acreage & hobby farms, vacant land, condos & townhomes, industrial/manufacturing/retail properties, association maintained properties, senior housing, luxury homes, vacation & secondary housing.
Serving the following Minnesota Counties: Sherburne, Anoka, Wright, Hennepin and portions of Isanti County
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