WHAT IS THE DIFFERENCE BETWEEN PRE APPROVAL AND PRE QUALIFIED
WHAT IS THE DIFFERENCE BETWEEN PRE APPROVAL AND PRE QUALIFIED
Not knowing the difference between these two terms could one day cost you your dream house! West Los Angeles Real Estate Group, affiliated with Rodeo Realty, makes sure that our clients will always have the knowledge they need so they reach there Real Estate goals.
Without good preparation, many buyers get lulled into the mistaken notion that if a lender pre-qualifies them for a mortgage this means that they have been pre-approved for a home loan. Unfortunately, there is a big difference between these two terms, I have been hearing my clients interchange them and this can lead to a world of trouble for them. I hope to clear this up by explaining the difference
Getting pre-qualified is the initial step in the mortgage process, and it's generally fairly simple. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify. Pre-qualification can be done over the phone or on the Internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.
The initial pre-qualification step allows you to discuss any goals or needs you may have regarding your mortgage with your lender. At this point, a lender can explain your various mortgage options and recommend the type that might be best suited to your situation. Because it's a quick procedure, and based only on the information you provide to the lender, your pre-qualified amount is not a sure thing; it's just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn't carry the same weight as a pre-approved buyer who has been more thoroughly investigated.
Getting pre-approved is the next step, and it tends to be much more involved. You'll complete an official mortgage application (and usually pay an application fee), and then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating.
From this, the lender can tell you the specific mortgage amount for which you are approved. You'll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock-in a specific rate.
With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. Obviously, this puts you at an advantage when dealing with a potential seller, as he or she will know you're one step closer to obtaining an actual mortgage.
Advantages of Getting Both Pre-Qualified and a Pre-Approved
The other advantage of completing both of these steps - pre-qualification and pre-approval - before you start to look for a home is that you'll know in advance how much you can afford. This way, you don't waste time with guessing or looking at properties that are beyond your means.
Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won't be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious - and could prevent you from losing out to another potential buyer who already has financing arranged. Once you have found the right house for you, you'll fill in the appropriate details and your pre-approval will become a complete application.
The final step in the process is what's called a "loan commitment", which is only issued by a bank when it has approved you, the borrower, and the house, in question. This means the home should be appraised at or above the sales price.The bank may also require more information if the appraiser brings up anything he or she feels should be investigated (i.e. structural problems, accessibility issues, outstanding liens or litigation in progress). Your income and credit profile will be checked once again to ensure nothing has changed since the initial approval.
A loan commitment letter is issued only when the bank is certain it will lend, so the commitment date on your purchase contract should be closer to closing than to the date of your offer. (The seller can ask to see that letter as soon as the date has passed, so beware of anyone who tries to put an early commitment date into your contract).
I am Bob Schmalz a California Licensed Real Estate Broker, I am the founder and owner of West Los Angeles Real Estate Group, handling all Real Estate needs from residential to investments To name a few of the cities we cover in West Los Angeles; Beverly Hills, Santa Monica, Brentwood , Pacific Palisades and Malibu are some of the most popular. Our beliefs are that our clients should have the knowledge they need to make decisions in there Real Estate Goals. In this way our clients helps us make the right decisions for themselves.
FIRST TIME HOMEBUYERS:INTEREST RATES BELOW 4% + LOW DOWN PA
"Plain and simple, we wouldn't have our home if it weren't for Bob. My wife and I were first-time homebuyers, and Bob helped us through the process every step of the way. It didn't matter that our price range was on the low side, given the LA market - Bob treated us like VIP clients the whole way through. He worked with us for over four months, sending us listings every week, going out with us to see several each Saturday or Sunday, always with a smile on his face and the most helpful advice. I was concerned that he might lose patience with us, because we were very particular about what we wanted, but he made it a point to make sure we knew that we were the customers, and that we called the shots about this very important purchase. That said, he protected us from a couple of potentially bad decisions. He actually steered us away from a couple of places with higher listing prices (and therefore higher commissions) than what we eventually bought, because, in his words, they were "money pits" that would cost us too much in remodeling, etc.
When we finally found the perfect place, Bob knew just how to close the deal and helped us with every step, from the initial bid to renegotiations for repair costs to working with escrow. And we ended up getting a very good deal on this place - it's now worth considerably more than what we paid! Bob was friendly and humorous the whole way through, and he ultimately made what could be a stressful process a really enjoyable experience. Thanks, Bob!