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Financing Process

The Difference between a Pre-Qualification Letter and a Pre-Approval Letter

Pre-Qualification

An initial evaluation of a potential borrower’s creditworthiness is used to determine the estimated amount the person can afford to borrow. Pre-qualification is a relatively quick and straightforward process that examines the potential borrower’s income and expenses to generate an estimated borrowing range that they are likely to be able to repay to the lender.

It is essential to note that the pre-qualification amount is not a guaranteed amount that would be received from a financial institution if you were to apply for a loan, but rather an estimate used to gauge what a person can afford to purchase. The pre-qualification process doesn’t include a more thorough examination of the borrower’s creditworthiness, such as accessing their credit report or score.

Pre-Approval

Pre-approval is a more in-depth assessment of the amount a person can afford to borrow, conducted by a financial institution that states the maximum amount it would lend to the borrower. It’s far better to be preapproved for a loan than to be prequalified.

Advantages of receiving a pre-approval from a lender

Timing is everything. Having the ability to make an offer when you find the perfect home is essential to owning your ideal home.

Be prepared! Showing a pre-approval letter from your lending institution creates confidence in sellers and eliminates questions and concerns that often arise, especially when multiple parties are interested. Be first in line and ready to go!

Know your options. If you’ve taken the time to speak with a preferred lender, then chances are, you have explored your interest rate options and monthly mortgage payment scenarios. Obtaining a pre-approval letter enables you, as the Buyer, to feel confident moving forward with your purchase offer.

Save Time by Looking at the Right Homes

Suppose you are receiving automatic email listings of available homes from your realtor. In that case, you can ask her to adjust the parameters to more closely match the selection of homes for which you are qualified to buy. If you’re not receiving e-mails from your agent, ask her to send them to you. Most MLS systems allow agents to send clients much of the same data that they receive. This way, you’ll save time by checking out homes within your budget.

  • Spend More Time Examining the Right Homes By decreasing the inventory of homes to those that fit your parameters, you can allocate more time to considering all the little nuances each home has to offer. Many buyers never move past the price point when sorting out their preferences, but now you can devote your energies to looking at the little things that matter to you most, such as whether your dog can jump the 6 ft privacy fence or you can oversee homework while cooking.
  • Gain Confidence & Avoid Disappointment When you eventually find the perfect home, nobody can take it away from you by telling you that you do not qualify to buy it. You can minimize anxiety and remove last-minute loan surprises that could disqualify you. You’ll have peace of mind knowing that the home you selected is yours. Moreover, you can inform your relatives and friends that the home you made an offer on is likely to close, and you will not “lose face” with anyone.
  • Leverage = Increased Bargaining & Negotiating Power Sellers will be more likely to immediately accept your offer, even if that offer is for less than the list price, because you are giving the seller peace of mind that their home is sold. She can take her house off the market and place it into pending status with confidence.
  • Enjoy a Faster Closing Period Since there is no waiting period while your loan application is being processed, the lender can expedite the entire processing procedure. Appraisals can be ordered immediately. It’s possible to shorten a 30-day closing to two or three weeks, which comes in handy if a seller needs to move quickly and can’t decide which offer to accept. Yours will move to the front if you can fulfill the seller’s need to close soon.

A mortgage approval is generally the longest contingency to satisfy in a purchase contract, and it is to your advantage to obtain a preapproval letter as soon as you’re ready to begin visiting homes with your realtor. Lenders will render a decision based on your complete loan application, employment verification, and data from all three credit reports.

Recommended Lenders

  • Randy McMullin / AmStar Mortgage
  • Office: (770) 509-7827
  • Cell: (404) 606-1124
  • Fax: (770) 424-7827
  • NMLS#178020 GRML#25934
  • Email: randy@amstarloans.com