Why You Need A Pre-Approval Instead Of Pre-Qualification
Pre-qualification calculates the amount you can qualify for based on your income and total debts. It does not take into consideration your down payment, source/quality of income and credit history.
Pre-approval is more significant than a pre-qualification, although it is not without its own shortcomings. Getting pre-approved "normally" means the lender approved you after reviewing and accepting your credit score, written income verification and proof of down payment availability. Having a pre-approval allows you to buy more confidently knowing not only what home price you can afford, but also that your rate is protected for a specified period of time in case interest rates go up. It also allows you to get the lower rate if rates go down. Moreover, it sometimes helps negotiate a better price with the sellers because it shows the buyer to be "strong" and serious enough with their offer for having a pre-approved mortgage.
If you get an approval subject to satisfactory credit history, income and down payment verification, then this approval is not considered "firm" enough and is not that much more significant than a pre-qualification.
The biggest caveat is that you can get a pre-approval, but if the property you bought does not mean the lender guidelines, you may not get a mortgage approved. That is why even if you are pre-approved, any offer you make on a property should still be "subject to financing approval satisfactory to the buyer." This will allow the lender to verify if the property meets their standards.
The bottom line is, a pre-approval is more significant and binding than a pre-qualification. As a summary, the following are the benefits you can expect from getting a pre-approval:
- Provides the ability for a faster closing once you find the property you want to buy.
- Your pre-approved rate is guaranteed up to 120 days
- You lock in your lowest rate which protects you from interest rate fluctuations. If mortgage rates go down during that time, the lower rate applies.
- Lets you know what price you can afford to buy your home.
- Strengthens your offer to buy as sellers will know you are a serious buyer who already has a pre-approved mortgage, and more guarantee that you can close on the deal. It puts you in a strong bargaining position especially when you get caught in a multiple offer situation where bidding war occurs with other buyers.
- Enables you to concentrate on finding the home you are purchasing, and not worrying about the mortgage approval process than has already been mostly taken cared of.
- It is free and without obligation to you.
The best thing to do to get a pre-approval is to call us. Having a professional mortgage broker by your side will help you avoid costly mistakes.
