Pre-Approved Beats Pre-Qualified

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Pre-Approved Beats Pre-Qualified

The home buying process can be complex. But borrowers can save a great deal of time and frustration by speaking with a mortgage broker or lender before they begin shopping for a home. Borrowers determine the price range they can begin to look for based upon the loan size that fits their budget.

Many lenders offer "pre-qualification" programs, which provide a borrower with a monthly payment based on limited information, the buyer, real estate agent and seller may have the mistaken impression that the mortgage is formally approved. In some cases, however, after a sales contract has been written and accepted, or after weeks of processing of the loan, the borrower learns that he or she does not actually qualify for the loan.

Borrowers can avoid this type of frustration by obtaining what is known as a "pre-approval" that is underwritten. Many lenders will provide a borrower with a letter good for up to ninety days after reviewing the borrower's credit and income with the underwriting department. This letter can improve the buyer's negotiating position with the seller.

The loan officer hand delivers the approval letter to the buyer and real estate agent, enabling buyers to proceed with their home shopping with the confidence that he or she has a guaranteed loan. The approval letter also indicates to the seller and listing agent that the borrower has obtained a legitimate early approval.