The Difference Between Being Pre-Qualified and Pre-Approved
One of the first steps in purchasing a home with financing is to get approved for a loan. One question I get asked frequently as an experienced real estate agent in Boulder, Colorado is “what is the difference between being pre-qualified and pre-approved for a home loan?” There is actually a very big difference and this could be the deciding factor on whether or not the offer you submit on a home gets accepted.
Pre-qualification is a preliminary estimate of how much you can afford for a mortgage payment. It is solely based on the accuracy of the information you provide to the lending institution. The mortgage lender will ask for many of the foundational documents later on in the process. Major issue can arise if the borrower is incorrect on any of these figures such as credit score, income or amount of debt.
Pre-approval is a much stronger commitment from a mortgage lender. To obtain a pre-approval letter from a mortgage lender you will have to go through a formal process and provide specific documents. This process will include, but is not limited to, a credit check and employment verification. During the per-approval process the lending company will do all of the necessary steps of an approval except for an appraisal and title search. A mortgage lender will pull a credit report from one of the three credit reporting agencies. This is to verify payment history and monthly amounts on any loans and credit cards. When you submit an offer on your dream home with a pre-approval letter your lender is saying it will provide a loan to you as the buyer for a specific amount. As a savvy real estate listing agent in Boulder, Colorado I always look to see weather a buyer is pre-approved or pre-qualified and note it to my seller when we are reviewing offers. This simple change could be the advantage a buyer needs in the Boulder real estate market especially when there are multiple offers on a property.
There will still be a few steps left before the loan on a home is approved and you are able to close, such as appraising the value of the home, but by getting pre-approved you are on the right path. It is also a good idea to create a financial file with all of the necessary documents a mortgage lender might ask for. Call Boulder real estate agent Ashley Newell today for a list of recommended local mortgage lenders.