Thursday, March 14, 2019 / by Amber Tice
There are plenty of real estate terms used in transactions. Needless-to-say it can be confusing for both buyers and sellers trying to navigate the process. The home loan process might feel overwhelming and difficult to understand, but it is important for the home buyer to be as prepared as possible when they are ready to buy their first home. Both buyers and sellers find terms like “Pre-qualification” and “pre-approval” used interchangeably, it’s no wonder they find themselves wondering how to proceed.
If you are a home seller it will be important for you and your real estate agent to discuss the difference between these two letters and why it’s important. In this hot sellers market here in Spokane you will most likely be receiving several offers on your home. You will want to make sure you are choosing one where the buyer is PRE-APPROVED.
The difference between the two are explained below:
Pre-Qualification: The first step in obtaining a home loan is to meet with a lender and discussing their financial situation. The lender will discuss income, assets, job stability, debt and credit. Once they have performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification Letter to the potential buyer. This letter will identify the maximum sales price, down payment requirement and basic terms of the loan, such as interest rate. The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a lender who is vouching for their ability to obtain a loan.
Pre-Approval: A pre-approval is quite different. In this case, the lender collects all the necessary information and proof of eligibility by asking for proof of income, assets, and debts. Lenders will also ask for tax documents. After all the required information is acquired everything will be submitted for review by the lender underwriter for approval. A pre-approval letter is almost like shopping with cash, the only remaining piece of the puzzle is the property they are buying. It is more difficult for a buyer to obtain a preapproval letter, but it will be well worth it for both buyer and seller towards the end of the transaction. There is nothing worse than being 10 days out from closing and the buyer’s financing falls through because they weren’t pre-approved at the beginning of the process.
Your real estate agent should discuss these two different types of letters with you when you sit down to review offers. They should be able to point out the differences of each type so that you are able to make an educated and informed decision when choosing an offer.
If you are a home buyer and don’t know if the letter you have is a pre-qualification letter, or a pre-approval letter reach out to your lender. They should be more than happy to educate you on the difference. They should also be willing and able to get you what you need. If they aren’t able to provide you with a pre-approval letter….shop for a different lender! There’s nothing wrong with making sure you are getting exactly what you need in order to successful in this competitive market.
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