Unfortunately, these two terms are all too often thought to mean the same thing. For the serious buyer who is led to believe that they are synonymous it is a shame, not to mention costly!
It’s important that buyers understand that accompanying every “Agreement of Sale” that is contingent on the buyer getting a mortgage (and that happens to be 99.9% of the time) is a letter of Pre-Qualification or Pre-Approval from a lender. Believe it or not Sellers just won’t accept an “Agreement of Sale” from a Buyer and take their home off the market unless they are reasonably sure the buyer can get financing. Go figure.
That means the stronger the Pre-Approval or Pre-Qualification letter – the stronger the buyer – the stronger the offer.
Okay, so what is the difference between being Pre-Approved and Pre-Qualified anyway?
A Pre-qualification is when the mortgage applicant’s Credit only has been verified. That’s it. All other facets of the mortgage approval process - Income, Assets, Employment, Etc. are NOT VERIFIED.
A Pre-Approval is when the mortgage applicant’s Credit, Income and Debt, Assets and Employment have ALL BEEN VERIFIED.
You may be thinking - “Okay, I have good credit and so on, I know I can get mortgage and I’m good looking to boot. What’s the big deal - my lender can verify my information later.”
Well, that’s true. But there are two good reasons to become Pre-Approved. Yes, only two. But they are big, really big.
Number One – A buyer that takes the time to become Pre-Approved will nine times out of ten get a lower interest rate and pay far less in up-front cost. That’s because the Pre-Approved buyer has the time to shop his mortgage around.
The Pre-Qualified buyer goes to “Agreement of Sale” and immediately gets caught up in hiring Home, Radon and Termite inspectors, attending inspections, negotiating inspection issues, hiring movers and packing, ordering Cable, Gas or Oil & Electric, Phone and Water services, canceling Cable, Gas or Oil & Electric, Phone and Water services. Changing your address with the Post Office, the Department of Transportation, the Voter Registration Office, your credit card providers, etc., etc. Not to mention trying to locate pay stubs, bank statements, W-2s, tax returns, and proof that you actually paid off that waterbed you purchased back in 1986 for your lender. Ultimately, the Pre-Qualified buyer doesn’t have the time to get the best deal on a mortgage. So, if saving money is important to you – I need not elaborate more.
Number Two - As if reason “Number One” isn’t enough to convince you to get Pre-Approved on it’s own – I offer reason “Number Two”.
Consider just for a moment you find your dream home. You’re only Pre-Qualified, but what’s to worry. You make your offer full price and will settle at the Seller’s convenience. You have excellent credit and are going to make a hefty 10 % down payment. You pen a note in your own hand to the Sellers telling them how much you love what they have done with the home and how you’re going to continue in they’re traditions. You’re in like flint. Right?
Wrong! As is always the case, when you’re fatefully attracted to a home and gotta have it. So does someone else.
Buyer number two’s offer is virtually identical to yours. Except for the fact that buyer number two is Pre-Approved. There is nothing left to chance, nothing left to verify, he’s done being processed by his lender, he’s going to get the mortgage.
The Seller really likes you and is truly touched by your note but buyer number two is Pre-Approved. There is nothing left to chance, nothing left to verify, he’s done being processed by his lender, he’s going to get the mortgage.
The Seller just feels more comfortable and more confident about buyer number two’s financing and is compelled to accept his offer.
If only you had been Pre-Approved.
Think of yourself as the seller for the moment. Which offer would feel right to you. Which offer stood the better chance of actually getting to settlement? Which offer would you accept? Would you take your home off the market “willy nilly” for a Pre-Qualified buyer. Which offer would be the right one for you and your family?
Especially now in this “Seller’s Market” Pre-Approval is the only way to go.
Save money, get a good deal on your mortgage and don’t lose the home of your dreams.
If you follow my instructions in “How to Shop For a Mortgage” you’ll be able to get Pre-Approved without it costing you a penny. You’ll save money, get a good deal on your mortgage and minimize the chances of losing a home of your dreams.