Pre-Approval Vs. Pre-Qualification Mortgage
Buying a home or getting a second mortgage can be a lengthy process. The lender involved must go through several stages where credit is carefully examined. The borrower must be able to show that they can pay off the loan, and the lender must be satisfied that they will receive a good enough return on their investment. If the borrower cannot pay off a mortgage, their property typically goes into foreclosure. Pre-approval and pre-qualification are stages the bank uses to help ensure foreclosures will not happen.
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Mortgages
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Mortgages can take a long time to be approved, but buyers of property typically do not have a long time to make offers or counteroffers for a particular property. Since they must act on such short notice, before they actually receive the loan, the real estate agent involved in the sale requires documentation that shows the person is approved or qualify for the mortgage to be used to pay for the house. This allows the sale to progress.
Pre-Qualification
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A pre-qualification letter is a letter from the lender that says the borrower should be able to borrow a certain amount of money for their mortgage. This letter is sent after the lender confirms basic information concerning the borrower, such as Social Security Number, credit history. However, the lender is still taking most of the buyer information for granted.
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Pre-Approval
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The pre-approval letter is a more official letter from a lender saying that the borrower should be able to receive a particular loan. It is still not approval, but this time the lender has taken a closer look at the information the borrower has provided, and has seen that the data appears factual and is in a financial position to pay the loan off. Less is taken for granted.
Requirements
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While neither pre-qualification nor pre-approval is actually a mortgage, they both make a difference when a buyer is making an offer on a home. A pre-approval letter is a stronger factor when making a bid. The seller, especially if it is a bank or another lender, will be more pleased to see a pre-approval letter with an offer than only a pre-qualification letter. This can make an offer stronger.
Mortgage Guarantees
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The pre-approval letter is the beginning of the mortgage process, where the lender begins a deeper investigation of the borrower's finances. It is not a mortgage guarantee, and neither letter means that the borrower will absolutely receive a mortgage. The borrower should make sure that he can afford the mortgage and that all information provided to the lender is completely honest.
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References
- Photo Credit process flow image by Christopher Hall from Fotolia.com
