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Monday, March 02, 2015

Home Buyer Tips: What is the difference between a pre-qualification and pre-approval?

What is the difference between a pre-qualification and pre-approval?

A mortgage pre-qualification involves a basic screening process that usually reviews a potential buyer's income, liabilities, credit histories, etc.  The mortgage pre-qualification process can provide a general idea of one's ability to obtain a mortgage but it is very cursory.

When it is time to write an offer it will be the mortgage pre-approval that will provide the seller a level of confidence the transaction can close if they accept the offer (although there will be boxes to check off along the way to closing)..

When shopping for a home it is the mortgage pre-approval letter that is the major supporting documentation for any offer.  [If a buyer is a cash buyer then it is the proof of funds letter.]

The mortgage pre-approval process requires the lender to gather information from prospective buyers for verification.  This will require the lender to pull a credit report, verify income and employment history.

The mortgage pre-approval process will result in an approved maximum amount.   This is what home buyers should get before they start shopping for a home.

One final word about mortgages in general.. the "approved amount" does not equal "must spend amount." 

In a real estate market such as the Brevard County, Florida market which has shifted to favor sellers it is very common for buyers to find themselves in a multiple offer situation.  When several buyers want the same home it can become an emotional bidding war - not good!  Prospective buyers should answer these two questions BEFORE looking for a home.
  1. How much can I really afford
  2. How much do I really want to spend?
If you are ready to buy a home in Melbourne, Florida, please give me a call at 321-693-3850 if I can help in any way (send me an email if you prefer).

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