The difference between a pre-qualification and a pre-approval for a loan is commonly misunderstood. Although either scenario puts you in a stronger position as a buyer, being pre-approved carries much more weight. It helps your Texas REALTOR® know how much you can borrow, which enables your REALTOR® to show you houses in your price range. It also makes the next step — actually getting a loan — relatively fast and easy.
When you are pre-qualified for a home loan, you provide a lender approximate income, current debts, and any important details from your credit history. The lender will use these figures to calculate how much money you may be eligible to borrow prior to application for a loan.
You may be provided with a Conditional Qualification Letter, which determines your likelihood of obtaining a loan. However, all information submitted during pre-qualification is subject to verification at the time the loan application is submitted. Because your financial situation has yet to be verified, there is no guarantee you will be approved for that amount … or for a loan at all.
When you get pre-approved, you actually fill out a mortgage loan application. In some cases, you may even have to pay an application fee. After an extensive examination and verification of your financial situation, your lender will commit, in writing, to fund your loan, pending a successful appraisal of the home and a few other conditions.
Additionally, even though you're not obligated to follow through with the loan, the lender must stand behind its written loan commitment (unless there are changes in your situation in the interim).
Having a pre-approval letter is as close to a sure thing as you can get in the lending world. It enables you to act quickly when you find the right home and gives you more legitimacy as a buyer because your offer is not contingent upon
There are some things that could cause a lender to withdraw from providing a loan after a pre-approval letter is issued. Many lenders will re-check a consumer's credit before funding a loan. Abstain from applying for any new loans, including credit cards. This also is not the time to make other major purchases, such as a car. An inquiry into your credit could lower your score and significantly affect your interest rate or cause a loan to be denied outright.
Be smart, take steps to secure your finances, and get pre-approved for a home loan. It will put you in a great position to purchase the home you've always dreamed about.