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Pre-Approved Home Loans vs. Pre-Qualified Home Loans
By EchoBay Loans Staff Writer

Buying a new home can be a very exciting experience, but it can also be very confusing. With all of the industry phrases and terms that fly around, it's almost like learning an entirely new language. When you begin to work with a real estate agent, one of the first things they will ask you is if you are pre-qualified or pre-approved for a home loan. It's important that you understand the difference between these two terms so that you know exactly where your home loan approval status stands.

Many people often make the mistake of assuming that they have been approved for a home loan because they have been pre-qualified. Unfortunately, this is not the case. Being pre-qualified for a home loan is not the same as being pre-approved for one.
When you are being pre-qualified, the mortgage broker is basing that pre-qualification on information that you are providing to them. You'll tell the broker or lender about your employment history, your annual income, your debt and expenses, and where you think your credit stands.

Based on this information, the broker will pre-qualify you for a home loan within a certain price range. The lender can provide you with a written statement saying that you have been pre-qualified for this amount so that when you do decide to look for a home, your real estate agent will know what price range you need to stay within. While pre-qualification is a very useful tool that will allow you to get somewhat of a grasp on what you can afford and where you mortgage application would stand should you find a home you want to purchase, it is not the same as a pre-approved home loan.

You may be asking, "But doesn't pre-qualification mean that I'll be approved for a home loan up to the pre-qualification amount when the time comes to apply for it?" Not necessarily. It is important to remember that during the pre-qualification process, none of the information you are giving the broker has been verified by the broker or the lending institution. You might think that you have "A" credit, when in fact you have "B" or "C" credit. There may also have been debts that you overlooked or old collection accounts that you did not take into consideration during the pre-qualification process.

So how does one go about qualifying for pre-approved home loans as opposed to pre-qualified home loans? The application process for pre-approved home loans involves most of the same steps as obtaining full approval from a lender. The only difference will be that you will not be required to obtain an appraisal or title search during the pre-approval process. First you will need to actually apply for the home loan. This means filling out an entire mortgage loan application and providing supporting documentation. After you have done this, your credit report will be pulled and reviewed. The loan application will then be submitted to one or more lenders for a preliminary review.

If you don't receive a pre-approval right from the start, the lenders will let you know what you need to do to get approved, or they may offer a conditional pre-approval that states that you will be approved after certain conditions have been met. Once you have been pre-approved, it is almost certain that you will receive a home loan when you find the house you are looking for. However, it is important to remember that the lender will usually pull your credit again right before making the loan and if your credit has taken a turn for the worse, you may not be approved.

So why is it important for people to obtain pre-approved home loans rather than pre-qualified home loans? A pre-approval can save you a lot of time and a lot of disappointment. There's nothing more depressing than finding the home of your dreams, only to realize that there's no possible way you would be approved for the amount you would need to borrow to purchase it. When you're pre-approved, you'll know exactly how much money you'll have to spend and you can keep your home search within that price range.

Another reason to become pre-approved is that it increases your negotiating power. Real estate agents don't want to waste their time, and they don't want to waste the time of their sellers. Some seasoned real estate professionals won't even take you to see a home that is listed on the market unless you have been pre-approved for a home loan, and many listing agents won't accept a written offer without a pre-approval letter attached to it.

When you have been pre-approved for a home loan, you'll have peace of mind knowing that when the time comes to make an offer on the home that you have set your heart on purchasing, your offer will be taken seriously.


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