Pre-approved vs. Pre-qualified for a Mortgage

Buying a home

Working as a real estate buyer’s agent, 8 out of 10 times I receive inquiries from buyer clients who want to see homes without already having a mortgage pre-approval.  It is very important that getting a pre-approval letter becomes the first step in your home search.  A lot of times, after a home buyer actually works with a lender and receives a pre-approval, the buyer realizes he/she needs to change their home buying plan when the buyer could not qualify for a mortgage or when it’s significantly less than what was initially assumed.  There are many factors and preparation that can affect your pre-approval and rates, including repairing your credit score, amount of down payment, closing costs, reducing debts.  You need to first talk to a lender.  When a buyer cannot qualify for a mortgage, there is no point looking at homes with a real estate agent.

All offers on a property are submitted with a pre-approval letter so the seller feels comfortable about accepting an offer from someone who can actually obtain financing.  Getting pre-approved also takes a few days so it makes no sense to find your dream home without already having it ready to submit with your offer.  In today’s seller’s market, homes in the median price range get snatched up so quickly if they are move-in ready and priced reasonably.  It’s important for future buyers to do their homework first with a mortgage situation before emotionally investing in their future home to buy.

Sellers want to see a solid pre-approval letter, not a pre-qualification letter.  Sellers are represented by listing agents and the agents know what is a good pre-approval letter and what isn’t.  Often times, buyers mistakenly believe that a pre-approval letter is same as pre-qualification letter.  Some lenders actually use the word “pre-approval” when it actually is a pre-qualification.  So what’s the difference?

Pre-qualification is a piece of letter from a lender saying that the buyer is pre-qualified for a mortgage based on the income information he or she verbally communicated to the lender.  Anyone could tell the lender that he or she makes a million dollar salary and will receive a pre-qualification letter.  It basically means nothing and no prudent seller will rely on pre-qualification letters.

Pre-approval is when a lender actually approves of one’s ability to obtain financing up to a certain amount after verifying income documents and pulling the borrower’s credit.  The lender analyzes the borrower’s debt to income ratio against the monthly mortgage and interest payments and determine the borrower’s true financial ability for a mortgage approval.  This is the type of approval that is needed in today’s market for an offer to be considered seriously.

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Peter Park

I'm a realtor with attorney experience representing buyers and sellers throughout the Portland metro area.
About me | View Portland homes for sale

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Call / Text: (503) 686-0138

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