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Pre-Qualify or Pre-Approval?

I am ready to meet with a lender and show all financial statements, w-2's, bank statements, etc....I understand pre-approval carries more weight than pre-qualified.  How does this work? Do I receive a formal letter in writing for pre-approval and then start house hunting? My wife and I have a good idea on the mortgage amount/limit. Also, is there a time limit for being approved ie...for 30-60 days etc....


Any suggestions are appreciated...
  • November 30 2010 - Orlando
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Answers (8)

In the Los Angeles market, most listings ask for a pre-approval letter from a direct lender vs a pre-qualified one to be submitted with the offer, especially if you are offering on a home that has or may have multiple offers.

Also, it is best to have a separate letter with each offer specific to the house/offer you are placing and not a general one with the max you qualify for.

Good luck and enjoy the process.
  • December 29 2010
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Preapproved is absolutely better when negotiating to purchase a home.
It means you have applied for your mortgage and it has been conditionally approved based on your income, assets and liabilities. It is subject to an appraisal and clear title and things only to do with the actual home purchase.

Prequalified only means a mortgage person looked at your income and credit report and based on that, they think you can get a mortgage. It really depends on how extensive the individual lender looks at your info. Some are not worth the paper they are written on because they lender only bases the prequal on what they are told without looking at actual bank statements/w-2, credit report. 
  • December 29 2010
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When making an offer on a home a pre-approval letter will be a stronger offer than a pre-qualification from a lender.  More indepth financial background verification goes into a pre-approval.
  • December 29 2010
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I am not aware of a distinction between being pre-qualified and pre-approved. What most lenders do is take a look at your credit score and then ask what your income and assets are, but not collect documentation on them. At that point if you meet the underwriting guidelines I would issue you a pre-approval.

Which is good for 90 days. After 90 days a new credit report would be needed to do the loan. 

The only suggestion I would offer is do not bother getting pre-approved at more than one bank. Its a waste of your time and a waste of the lender's time as well, they are simply duplicating someone else's work, and it means you have multiple hits to your credit. Also, out of courtesy I would recommend you return to the lender who did your pre-approval if you choose to shop your loan more, give that person the first chance at your business and let them know up front you will be shopping if you plan to do so. 

If you do that, the lender will give you better service overall. From the perspective of a lender, its frustrating to do all the work of pre-approving someone only to never hear from them again. Of course there is no actual obligation, but its just common courtesy to that person to return to them first, since they did the work upfront. 

Good luck shopping!!
  • December 01 2010
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I think it's better to provide documentation to the lender and allow them to pull credit so that you can get a preapproval letter - it does carry more weight and shows a seller that you are serious and able to purchase.
  • December 01 2010
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Check with you lender on the time limit question, and ask them to provide a letter for each property you make an offer on.  That way it will be a current letter, and the amount will be in line with the offer price.
  • December 01 2010
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Jim is absolutely correct. I always have my buyers have a letter of pre approval. It shows the seller you are a serious buyer. Good luck with your house hunting!

Jennifer Parker
HomeSmart Realty
[contact info removed by moderator due to self-promotion]
  • November 30 2010
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How great to see a well informed buyer! A pre-approval letter from a lender helps your purchase offer carry more weight. Lenders will usually provide the letter to you to submit with an offer.

I ask my buyers for a letter with each offer. The letter should state that you are pre-approved for the terms of the offer. I don't like to submit a pre-approval letter stating you are approved for $150k when we are offering $125k on a $200k property. That is just asking the seller to counter our offer higher because they know you can afford more. So set the letter to the offer ... each and every time.

Don't wait for the letter to start hunting. You should start your search now so you become familiar with the local market. That way you will be better able to spot a good deal and know what to offer from what you have seen. A well informed buyer will make more realistic offers, the ones that will be acepted by the sellers.

Sounds like you have a good game plan ... good luck!!
  • November 30 2010
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