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Pre-approved versus pre-qualified
Wednesday, December 31, 2008 • Posted December 30, 2008 10:00 PM

Before you begin shopping for a new home, consider getting a preliminary loan approval before you begin the process. There are two options available to consumers—pre-approval and pre-qualified. Although they may sound similar, they are, in fact, quite different.

While both may place consumers in a potentially stronger buying position, getting pre-approved by the lender carries a bit more weight. Pre-qualified simply gives you an idea of how much money you might qualify to borrow. A pre-approval goes one step further than a pre-qualification. Typically pre-approval means that your financial situation has been verified by the lender. It lets sellers and agents know how much money you can borrow, and makes the next step—applying for a home loan—relatively fast and easy

What does it mean to get pre-qualified?

When you obtain pre-qualification for a home loan, you provide a lender approximate income, current debts and any important details from your credit history. Your lender will then calculate how much money you may be eligible to borrow prior to application for a loan. Your lender may even provide you with a Conditional Qualification Letter, which determines your likelihood of obtaining a loan. In fact, here in Texas, mortgage brokers, not bankers, are required to provide you a conditional loan letter. However, a ll information submitted during pre-qualification is subject to verification at the time the loan application is submitted. Because your financial situation has yet to be verified, there is no guarantee of a home loan.

In fact, the pre-qualification alone makes it difficulty to assess if you can even afford to purchase the property without stretching your budget too thin. Many times, the amount you might be eligible to borrow is often much higher than the amount you can actually borrow, so it’s wise to get pre-approved so you know exactly how much home you can afford.

What does it mean to get pre-approved?

When you get pre-approved for a loan, you actually fill out a mortgage loan application. Some lenders may even ask that you pay an application fee. After an extensive examination of your financial situation, your lender will commit, in writing, to fund your loan, pending a successful appraisal of the home and a few other conditions. Your lender may also provide you with a Conditional Approval Letter. There’s no commitment on your part to follow through with the loan, but getting pre-approved for a mortgage typically enables you to move quickly when you find the home of your dreams and make an offer that is not contingent upon obtaining financing. It also lets a seller know your offer is serious and could prevent you from losing out to another purchaser who already has financing arranged.

Having a pre-approved loan letter is the closest thing to buying with cash because, pending any changes, lenders are obligated to stand behind their written loan commitments. It’s important to understand that there are some things that could cause your lender to withdraw from providing the loan. Many lenders will re-check a consumer’s credit before funding a loan. It’s important to abstain from applying for any new loans, including credit cards. An inquiry into your credit could lower your score and cause a loan to be denied. It’s also wise to be as honest as possible with your financial situation.

Get your finances in order

If you don’t know how much of your money you want to devote toward housing, it’s difficult to know what you can and can’t afford. If you haven’t done so already, get a copy of your credit report. C hecking your credit report regularly is the best way to spot identity theft, credit report errors or other financial missteps that very well could affect your ability to buy a home. The Fair and Accurate Credit Transactions Act of 2003 made it possible for consumers to access free copies of credit reports, which list a consumer’s financial history, including total debt and whether you pay bills on time. To request your report online, visit www.annualcreditreport.com.

Be smart, take steps to secure your finances, and get pre-approved for a home loan. Soon you’ll be in the home you’ve always dreamed about. For more information on qualifying for a mortgage loan, talk to your Texas Realtor. To find a Realtor in your area, I invite you to visit www.TexasRealEstate.com.

For your real estate needs, please contact RE/MAX Genesis at 830-833-2000.

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