Why Get Pre-Approved?
"Pre-Qualification" and "Pre-Approval." - most people don't know that the two are very different, and why you should always get Pre-Approved before you start looking for a home.
Benefits of Pre-Approval
Pre-Approval means that you are ready to get the loan. The lender has pulled your credit, and verified your application. As long as the home appraises for the purchase price and your financial situation does not change, you will be approved.
When you look at it from the Seller's perspective, a Pre-Approved Buyer is the best kind there is (aside from a cash Buyer). It is possible for a Pre-Approved Buyer with a lower priced offer to win against a Buyer with a higher offer but no Pre-Approval. It pays to be prepared!
Different Levels of Borrowers/Buyers
To the Seller, there are the three stages of approval from worst to best:
- Neither Pre-Qualified nor Pre-Approved - The buyer has not met with a lender and can provide no evidence that they can afford to purchase the property. Typically, the seller will wonder how serious they are about buying - rightly so.
- Pre-qualified - The Buyer met with or called a lender and verbally provided their income, expenses, assets and liabilities. The lender may or may not have seen their credit report and has not verified the buyer's information. The best that the lender can do is state their opinion of whether the buyer will qualify (if what they have been told is accurate and complete).
- Pre-approved - The Buyer has provided written evidence of income, expenses, assets, liabilities and credit. All information has been verified by the lender. Because much of the paperwork for the loan has been completed, this buyer can close sooner. The Buyer's Realtor can now provide a strong letter with the offer stating that, except for extreme circumstances, this buyer can purchase the property.
As a potential buyer, you can see that being pre-approved gives you the best chance of getting your offer accepted. This is critical in a competitive situation.