Which is better? Pre-qualified or
pre-approved to buy a house?
by Greg Cryns
No doubt about it. If you want to engage
the services of a good real estate agent to buy a house you better
have your "Pre-Approved" letter from your lender in hand.
To understand why this is much more important today than it was just a
couple of years ago you need to know that many people apply for
loans these days, but few people actually
can obtain a loan. One agent told me, "Every time a bring someone
to my mortgage broker he gets stiff armed!"
It is not that the real estate agent
thinks less of you. It is not personal. He or she simply wants to be
more efficient. After all, if he spends a lot of time showing you
houses and then you get turned downed for a loan, the agent has wasted
his time.
When you bring in the "Pe-approved"
letter you are being told that in most cases the loan is ready to go.
The client applied for and was approved for a new loan. All the
groundwork has been done. Credit reports and background reports were
checked out. The lender goes out on a limb and tells you how much the
buyer can borrow. This is very helpful for determining how much the
buyer will be able to buy. That is determined by the lender not by the
buyer or agent.
A "pre-qualified" letter is an
opinion extended by a mortgage officer that your buyer is likely to be
approved. This is a far cry from the acutal approval since the officer
depends on the veracity of the buyer. Buyers are well known to
over-inflate their value. "Oh, I forgot to mention that car
loan," the buyer may say. He probably really forgot about that
loan but the loan could be a big factor in his approval for a new
loan. Or the buyer may dream up a new job history or overestimate his
bank account balances.
So, a "pre-qualification"
letter is not worth much to the seller, the agent or to you either.
Another confusing term is "loan
commitment."
The loan commitment is the highest amount
the lender will make to a particular buyer. This comes after the buyer
has been approved for a loan. The "loan commitment" is
important because it means the house itself, as well as the buyer, has
been approved.
Some houses come with stumbling blocks
for lenders if they must resell the house due to a foreclosure.
Foundation cracks, for example, are major red flags for lenders and
may affect whether a loan can be made at all. Bad plumbing is another
major problem when you sell a house. The lender has an appraisal and
an inspection in hand before he makes the commitment.
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