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Pre-qualified or Pre-approved Mortgage? Which is Best?

The terminology you can encounter when trying to buy a home can often be confusing. Pre-qualified mortgage and Pre-approved mortgage. Which option is best and which one will provide you with the best chances to purchase the home you have your heart set on. While pre-approved and pre-qualified can sound similar, it is important to keep in mind that they are actually much different.

Pre-Qualified Mortgage

When you become pre-qualified for a mortgage loan, you will provide the lender with an approximation regarding your income and debts as well as other information regarding your credit history. The lender will then use that information in order to estimate the amount of money you might be eligible to borrow to buy a home. The most important thing to keep in mind about becoming pre-qualified is that the lender is basing their calculations on the information you provide them. Nothing is actually verified. This is crucial to understand because the amount of your pre-qualification is subject to verification. In a pre-qualification scenario, the lender will likely provide you with what is known as a Conditional Qualification Letter. This does not guarantee that you are able to borrow that amount of money. Due to the fact that your financial situation has not yet been verified, the lender is not able to guarantee you a home loan.

Pre-Approved Mortgage

In a pre-approval situation, the lender will actually take the time to verify your finances. This means that you will complete an application for a mortgage loan. You may also need to pay an application fee. Once the lender has examined your financial situation, which can take some time, he or she will then make a commitment in writing guaranteeing they will fund your loan. That guarantee will be pending based on the appraisal of the home being success as well as some other conditions.

Many prospective buyers wonder what the point is in becoming pre-approved when they have not yet even found a home. Keep in mind that simply because you may have been pre-approved for a loan, that doesn't mean you are bound to borrowing that money or even that amount of money. What it does mean is that you have a written commitment from a lender that unless your situation changes, you are approved to borrow that much money for buying a home. This can be important for many reasons. First, it can give you some peace of mind as a buyer. You will then be able to start shopping around for a home and know precisely how much money you are able to afford. This can help you to avoid finding a home, falling in love with it and the realizing that it's out of your price range. In addition, it can also give you a stronger negotiating position as a buyer. While most of the country remains in a buyer's market there are a few isolated pockets around the country where the markets remain strong. In these markets, it is not uncommon for homes to receive multiple offers. If that is the case, you can have a much stronger position with the seller if you are already pre-approved for a loan. Get your free and best mortgage rate quotes from multiple lenders, and start your pre-approved process now!

You also need to understand the circumstances under which the lender might reverse their earlier decision regarding your loan approval. In the event your credit situation changes between the time you obtain the pre-approval and the time of the loan's funding, it is possible the lender might increase your interest rate or could even deny the loan. This is why it is imperative that you not take on any additional debt while you are in the process of buying a home. Avoid opening any new credit cards and making any large purchases. Hold off on buying new furniture for the home until after the deal closes. Now is also not the time to take time off from work if it means that you'll show a reduction in income.

It is also important to stay on top of your credit report. Check it on a regular basis to make sure there are no errors or mistakes that could interfere with your ability to buy a home. Remember that you are eligible to receive a free credit report from each of the three major credit reporting agencies each year.

By understanding your finances and the terminology involved in buying a home, you will be able to increase your chances of approval and also strengthen your position as a buyer.



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