Pre-qualification and pre-approval letters are not the same thing, and yet many home buyers think the terms are interchangeable. In reality, things are a bit more complicated than that.
Pre-qualification is the stage when your assets, income, savings and debt are analyzed in order to determine what amount of money you can borrow. After the review is completed, the lender will write a letter which will clearly say for what sum of money you qualify.
Pre-approval, however, is a more meticulous process that requires the lender to follow a number of steps that are absolutely essential in financing your mortgage. During this time, the analysis of your income, debts, and assets is much more thorough. Even your savings for the down payment will be investigated. After all the necessary steps are taken, a letter from the lender will offer you a clear idea of how much you can afford to borrow.
A lot of people wonder: does the moment you get pre-approved matter? And the answer is “yes, it does matter!” Getting pre-approved before you start shopping for your dream house presents you as serious and dedicated, both to the realtor and the home seller. This will represent an advantage that you can use in negotiations. In addition to this, real estate agents prefer pre-approved buyers, because it allows them to focus on houses that are in your exact price range, and save a lot of time.
House hunting is a lot of fun, but when someone else gets your dream house because they’ve been pre-approved and you aren’t, you will be disappointed. So, stay informed and work closely with your agent to clear any misunderstandings and move into a new house as soon as possible!