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A Pre-Qualification Letter Doesn't Equal Being Pre-Approved

by Teri Bruinsma 01/05/2020


 Photo by Tayeb Mezahdia via Pixabay

When you start looking for your dream home, you need to know how much mortgage you will qualify for. Your real estate agent might ask you to get a pre-qualification letter. However, just because you are pre-qualified doesn’t mean that you will get the loan. You need a pre-approval for that, and even then, the mortgage company might not approve your application.

Pre-Qualification

A pre-qualification letter just tells you how much loan you can afford. The lender does not check your credit, your debt-to-income ratio or other factors before issuing a pre-qualification letter. Additionally, a pre-qualification letter is dependent on the information you provide to the lender. The pre-qualification essentially gives you an estimate of how much home you are able to afford so that you do not look at homes that are not within your range.

To get a pre-qualification, you supply the lender with your assets, debt and income. Because the lender bases its decision on the information you provide, rather than information from outside sources, a pre-qualification is not a guarantee that you will get the loan.

Pre-Approval

Getting pre-approved for a loan usually takes longer than getting pre-qualified. The lender pulls your credit report and might ask for additional documents, including tax records and bank statements. To get pre-approved, you must complete a loan application and provide your social security number. The lender might charge an application fee for a pre-approval.

With a pre-approval, you will have a closer interest rate assessment, that is usually not finalized until the loan goes through underwriting. Once the lender pre-approves you, it will send you a conditional commitment for the loan amount. You can look for homes at or below that price.

In a market when buyers bid against each other – a seller’s market – having a pre-approval letter might give you a step up with the seller, who will more likely choose an offer by someone more likely to get the loan. Thus, if you and someone else submit a bid on your dream home, but the other person only has a pre-qualification letter, the seller might accept your offer, even if it is not as good as the other buyer’s offer, simply because you are more likely to get the mortgage.

For a pre-approval, you will need to:

  • Complete the lender’s mortgage application;

  • Possibly pay an application fee;

  • Supply your social security number and allow the lender to pull your credit;

  • Provide financial information to help the lender make a decision; and

  • Tell the lender how much you plan to put up as a down payment.

After you are pre-approved and the seller accepts your offer, you will then have to provide the rest of the documentation to the lender, including the accepted offer, bank statements, retirement account statements, taxes for up to two years, proof of income and other documents that will help the lender come to a concrete decision.

About the Author
Author

Teri Bruinsma

Even though Teri Bruinsma is an Iowa native, she has considered Colorado her home for over 25 years. In Teri's professional career, she strives to be the best in selling real estate while providing superior customer attention and service. Teri "thinks outside the box" and has a passion for real estate and marketing. Teri will get the job done. Period. Teri works actively and aggressively to help buyer's find the perfect home in this competitive market. She focuses on the needs of her clients and operates with uncompromising honesty, respect, patience, and fairness. Her passion and love for the real estate industry are unsurpassed and create a strong foundation of commitment and success for her clients. She combines her 30+ years of sales experience with the latest technology and knowledge of industry trends and offers a unique value to her clients by educating them and helping them to make the best decisions during the transaction. 

Let me be your personal assistant to help you buy or sell your next home. Having 30+ years in sales I know what it takes to help you out in the buying process. Negotiation, contract knowledge, and area expertise are all great skills, but don't compare to the art of listening. If you are a first-time home buyer and are unsure of what it takes to buy a home, give me a call and I'd be happy to walk you through the buying process. Not only do I help locals find a new home, I am experienced in helping out of state families move into Colorado. If you are considering relocating to Colorado, let me set you up with some of my virtual showings and give you the chance to walk through any home you'd like without even leaving the office. Let me be your Realtor for Life!