Mortgage terminology can be confusing. One important milestone to becoming a serious buyer is understanding the difference between being pre-qualified and pre-approved.
Prequalifying means you’ve been initially screened by a lender. It is only getting your foot in the door. Usually, you will submit some basic information, and the lender will provide a rough estimate of what you might be able to afford. Frankly, this won’t help much in your efforts to seal a handshake deal on a home.
On the other hand, a mortgage pre-approval takes the preliminary loan process a step further. Additional financial information is gathered, likely including a credit report. In some instances, you might be asked to provide many of the same documents that will be required to complete the actual loan process, including tax returns, bank statements and employment verification. With a pre-approval letter from your lender, real estate agents and sellers know you are a serious buyer.This letter can be shown to sellers when bidding on a property. It proves that you already have backing and the ability to go through with the sale, which makes you a much more attractive buyer to sellers.
Article provided by https://www.nerdwallet.com/blog/mortgages/preapproved-mortgage-matters/
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