Pre-Approval vs. Pre-Qualification
What's a Buyer to do?
Many buyers talk to a lender before they ever place their first call to a Real Estate Agent, to find out how much they can afford to spend on a new house. This is actually a very wise approach to beginning the home buying process. It is never a good thing to go out looking at houses, find and fall in love with a house only to find out afterward that the house is priced $50,000 more than what you can afford! This heartbreaking experience can be avoided if first you check with a lender to get pre-qualified, so that you know the general price range in which you should be looking for a house.
However, pre-qualification is not the only step in the process of obtaining a loan for purchasing a home. You must also be approved for a loan in order to actually go through with the purchase. In the past many Buyers tended to wait until they had an Accepted Offer to Purchase before they began the process of being approved for a loan. This is not the wise way to approach a purchase. The wise Buyer will continue the process of loan approval before they ever find the house of their dreams, and this can be done by obtaining what is called a Pre-Approval from a Lender.
There are a number of advantages to getting Pre-Approved while searching for a house, or before ever beginning to look. One of these and perhaps the most advantageous is, if a Buyer is Pre-Approved for a certain loan amount, they can essentially write their Offer to Purchase as though it were a cash offer, with a financing contingency only for the purposes of obtaining a satisfactory appraisal. This is advantageous because most Sellers view cash offers as stronger offers, and in the case of a competitive situation, which Dane County Buyers often find themselves in, a cash offer will always far outweigh an offer with a long-term financing contingency. Another advantage to being Pre-Approved versus being merely pre-qualified is that a quicker closing can take place if necessary, because the lender does not have to go through all of the paperwork of the approval process – it’s already done!
So, it’s good to be Pre-Qualified…
But it’s Great to be Pre-Approved!!