One of the most common misconceptions, especially among first-time home buyers, is that a loan pre-qualification is the same thing as a loan pre-approval. This is, in fact, NOT the case and confusing the two can cost you your dream home.
Let’s first dispose of the term pre-qualification. A loan pre-qualification is an informal, often casual and usually verbal, opinion by a lender that a person is “qualified” to borrow a maximum amount of money and at a maximum interest rate. The information supplied by the prospective borrower has not been verified or substantiated. The opinion is based on the borrower’s documentation, credit rating and FICO score checking out. It’s an opinion without substance and has little if any value.
In contrast, a loan pre-approval is a formal loan commitment stating that the borrower’s credit worthiness has been verified and approved. The borrower has formally applied for a mortgage loan and submitted documentation supporting claims of employment, assets, credit, debts and FICO scores. The lender has reviewed and verified the information and made a decision to underwrite a loan under specific terms. A buyer who has been pre-approved is equivalent to a cash buyer. A loan pre-approval places the buyer is the strongest bargaining position because there is no uncertainty over the financial aspects of the proposed transaction.
A loan pre-approval is the end point in financial preparedness and the first step in your home search process.
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Tags: first time home buyer, mortgage, san mateo county real estate, san mateo home buyer
Raymond Stoklosa, Broker/Co-Owner
Chela Stoklosa, Realtor/Co-Owner
