Pre-qualified or Pre-approved for a home loan? There IS a difference!

Whether you are a home buyer or a home seller, you must have heard those two terms many times. Real estate agents sometimes use those two terms interchangeably, and they ARE NOT THE SAME! There's a world of difference between the two! The number of steps, and the amount of effort between the two vary greatly, and the one you choose to pursue can make every difference in the world as it pertains to your transaction.


Here's why one is better than the other-

Getting pre-qualified can be as easy as making a 10 minute phone call. It's certainly a good idea, and it's actually a first step towards pre-approval. The only things you need to do to obtain a pre-qualification is to call your lender or mortgage broker, tell them your income, how much downpayment you have, and what kind of debt you have. They will take those figures and calculate an approximate purchase price based on the inofrmation that you have given them, taking into account the current interest rates, and how good you feel your credit is. Your representative may not always request or run a credit report before he/she gives you a price range.

A pre-approval, on the other hand is much more detailed.  You'll submit tax returns, allow the lender to obtain a credit report, and fill out an actual mortgage application. You can do this even if you do not have a property in mind. When you locate a property, most of the submission process has already been completed, and the lender only awaits property specific details, such as a contract of sale, annual taxes, property condition, and an appraisal for the  house. 

The bottom line: If you are a seller, and you have two offers in front of you at the same price, and you are trying to decide which one to take, unless there is some type of extenuating circumstance, I would work with the pre-approved buyer. It makes better sense- a pre-approved buyer is a better prospect than a pre-qualified buyer for reasons stated above. If you are a buyer, go ahead and get prequalified NOW, if you are out looking at homes, and haven't already done so.  Once you are prequalified, begin the pre-approval process so you don't get into a situation where a buyer looks better than you do "on paper"because they have completed additional legwork.





Make sure you check all of the fees for your loan!

I usually do a rate check on Monday and Friday mornings, but I decided to check them today and  give you an update. Generally, you see interest rates that range from bank to bank, and from credit score to property, etc., but one very important item  remains wherever and whenever you look. By the way, today's rates can vary anywhere from about 3.75% for a 15 year loan  to 4.75% for a 30 year fixed rate  loan. Another  variable to that  is the fees, and all the fees produce your APR (Annual Percentage Rate) That's why you can look at an annual interest rate and see that the APR is  higher. That means that the rate actually ends up being more with all the fees associated with that loan. The bank will take points, for example, (and other up front fees) , which in effect reduce the amount of the actual loan, although the payment stays the same. When that is done, the new rate reflects the same payment spread out over the term of the loan, which is why the APR can be higher.

Here is a link to an online banking resource for your own overview of the rates.