Before buying a home, most purchasers need to qualify and obtain a mortgage. Very few people have hundreds of thousands of dollars in their bank account.
A smart buyer is a well-prepared buyer. That’s where a pre-approval letter from a lender comes in.
Many buyers are unaware that there is a difference between a mortgage pre-qualification letter and a mortgage pre-approval letter. But that difference could make or break a home purchase, especially in a tight real estate market.
Pre-qualification simply means that a buyer’s credit-worthiness has been evaluated, and the buyer may be eligible for a loan up to a given amount. This type of letter is not a promise. The conclusions in the letter are based on information given to the lender by the buyer. It is simply an evaluation of supposed facts by a mortgage professional.
A pre-approval letter is a lender’s statement that a buyer qualifies for a certain mortgage amount based on reviews of all financial information. A buyer’s credit report, pay stubs, bank statements, assets and obligations are taken into consideration before any lender will issue a pre-approval letter.
A purchaser with a pre-approval letter is the closest thing to being an all-cash buyer. If the buyer’s chosen property appraises at or above the agreed-upon price, and nothing in the purchasers financial picture changes before closing, a pre-approval letter is like having money in the bank.
All buyers should remember that a pre-qualification letter helps them determine approximately how much of a loan they can obtain; the pre-approval letter lets all parties know that there is cash backing up an offer.
If a seller happens to be choosing between two like offers, which kind of buyer would be in a superior position: one with a pre-approval letter or one with a pre-qualification letter?