Pre-Qualified vs. Pre-Approval
Getting pre-qualified for a loan is fast, free and easy to do. Pre-qualification is an estimate of what you, the buyer, can afford. Your monthly payments are subtracted from your monthly income and a portion of what is left will be used to repay a mortgage loan.
Becoming pre-approved from a lender takes longer and is an involved process. When you have been pre-approved for a loan, the mortgage lender has verified your earnings and assets. The lender also has examined your credit history and previous tax returns. Most likely you will pay a fee to get pre-approved. Many times pre-approval is the first step in a loan application. Once you have been pre-approved, the lender will issue a letter stating the amount of money (loan/mortgage) you have been approved to borrow.
A pre-approval letter from a lender is a powerful negotiating tool for the buyer. It is like walking into the purchase negotiations with cash. You have the money and are ready to buy. The last thing a seller wants to do is pin his hopes on the buyer getting approved for financing, just to see the whole deal fall through if the buyer can not get approved. This could cause a costly and inconvenient delay for the seller. Consequently, as a pre-approved buyer, you might be able to negotiate a lower price on your home. The seller will avoid additional costs on the home because you are a serious buyer ready to make an offer.
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