Since I am asked this question so often...I have decided that THIS is a very timely and appropriate subject...especially given the recent changes in the mortgage lending world. So...what is the difference, and why does it matter?In the real estate world, it is common to hear an agent ask...'Does your buyer have a pre-qualification or a pre-approval?' IF the answer is, 'He has a pre-qualification', the agent will probably reply, 'Well...you know that pre-qualification isn't worth the paper it is written on!' WHY would he say such a thing??
The answer to this question can best be answered by answering the previous question...'What is the difference, and why does it matter?'
The difference is very simple. A pre-qualification is an opinion...an educated opinion...but still an opinion. It is usually given by a loan officer after a conversation with the prospective buyer, based on the prospective buyers' answers to some basic questions. In most cases, the loan officer will issue the pre-qualification without verifying that the information he has received is accurate. Therefore, regardless of how qualified and legitimate the loan officer may be, a pre-qualification based on information that has not been verified is not reliable.
In contrast, a pre-approval is a loan commitment based on verified data, documentation and credit worthiness. A pre-approval indicates that the lender has submitted the prospective buyers' application and documentation to underwriting, and the loan is approved subject to the following conditions: the buyer entering into a sales contract for a specific property, the buyer performing inspections and negotiating the repairs for the property and the appraisal of that property. The lender will also require clear title and hazard insurance prior to closing.
IF you are still unsure of the difference, this example will clarify everything for you!
IMAGINE you are experiencing some strange health symptoms and decide to see a doctor. The first doctor talks to you and asks you to describe your symptoms. Without examining you physically...without any blood tests...without any investigation of any kind...he announces to you that you have a rare disease and must have emergency surgery immediately. The second doctor asks you the same questions, then he examines you physically. Before he pronounces his judgement, he also orders a full blood panel and other necessary tests. After receiving the results, he assures you that you have a virus that will pass in seven days. IN WHICH DOCTOR WOULD YOU HAVE MORE CONFIDENCE?
IF YOU ARE THINKING OF BUYING A HOME, THERE ARE FOUR VERY IMPORTANT REASONS TO SEEK A PRE-APPROVAL BEFORE BEGINNING YOUR HOME SEARCH...
1. Once you find a home you wish to purchase, your offer will be much stronger and more favorable if you have a pre-approval. The reason is that the seller can place his confidence in your offer making it to closing. IF there are multiple offers, the seller may even choose yours over another buyer just because you are pre-approved.
2. You may be able to obtain the home for a lower price because you are pre-approved. With a pre-approval, a large portion of the loan process is complete. Therefore, you could submit an offer with a shorter contract period. In the real estate world...time on market is dollars lost. A quick closing is worth money to the seller.
3. With a pre-approval, you can be sure that you do not waste time looking for homes that are outside of your price range. There is nothing more discouraging than finding a home you absolutely love and later realizing that it is above your price range.
4. With a pre-approval, you will not spend money on inspections and appraisals only to learn that the loan officer was 'off' by $10,000 when he pre-qualified you!!! Of all the reasons...this is the one that makes the most sense to me. You work hard to earn your money. By taking a week or two extra to obtain pre-approval, you will ensure that you do not waste your time and money on the wrong home.
I hope you have enjoyed this article and learned something in the process!
If you, or someone you know, is planning to buy or sell a home...I know a GREAT REALTOR®. I'd love to introduce you to her.
Contact:
Elizabeth Nieves - Broker, REALTOR®
No comments:
Post a Comment