Pre-approved vs Pre-qualified Mortgage

Many of the mortgage professionals call a pre-qualification a pre-approval when this is not the case. When you visit a mortgage professional, they will either pre-qualify or pre-approve your mortgage application. These two terms have become interchangeable through the years and that is unfortunate for many borrowers. First time property buyers often get confused of these two terms and mistakenly only get pre-qualified for a mortgage. A buyer should be aware that they may not actually be approved for the loan amount suggested because of various factors. The banks may sanction loan based on your income, credit history or repayment capacity but you should look at your monthly expenditure and see if you can afford the maximum that banks offer.

The first and most important step in buying a home is getting prequalified for a home loan. It is fairly simple as you supply a bank or lender with your overall financial picture, including your debt, income and assets. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved.

Pre-qualified mortgage

Pre-qualified mortgage or pre-qualified home loan is just the amount for which you might expect to be approved. After evaluating your income, age, repayment capacity a lender can give you an idea of the mortgage amount for which you qualify. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. At this point, a lender can explain your various mortgage options and recommend the type that might be best suited to your situation. All a pre-qualification establishes is how much money you may be able to borrow.

What is a pre-approved housing loan?

Pre-approved mortgage or pre-approved housing loan is principle sanction given by a bank for a particular loan amount. Getting a loan pre-approved will help you to target a house that is within your budget. This makes it clear to the seller that you are a serious buyer and also assert the fact that you have the financial means to close the transaction. Processing of the loan application will take place at a much quicker pace if the loan is pre-approved. Please note that the pre-approved loan is valid only for a particular period after which the borrower will have to go through the process again. You should apply for the maximum in a pre-approval. You can reduce the mortgage amount in a day or two, maybe even hours.

Pre-approved vs. pre-qualified mortgage

1. If you have not signed an application and just given information, your home loan is just pre-qualified. If you signed loan documents and when the lender hands a preapproval letter, it means you will know in advance how much you get as home loan.
2. Pre-qualification can be done over the phone or on the internet. Getting pre-approved tends to be much more involved.
3. A pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated.
4. The initial pre-qualification step allows you to discuss any goals or a lender can explain your various mortgage options. When getting pre-approved you may get a letter stating how much money you can borrow.
5. For pre-qualified borrowers sellers may not immediately accept your offer. Pre-approved borrowers have bargaining & negotiating power and remove last-minute loan surprises.

The bank is not obligated to provide the loan

A pre-approved housing loan is essentially an in principle sanction given by a bank. It will hand over a letter stating that an in principle approval of a particular home loan amount has been granted and will be valid up to a particular period. However, the bank is not obligated to provide the loan as banks clearly state that the in principle approval is subject to verification of property documents and the property itself. It is always good to hire a lawyer, who can search the title and associated documents for you. Apart from these documents, make sure to get the encumbrance certificates from the sub-registrar.  Banks and financial institute can reject your home, if the title of property is unclear or dealing with builder or developer not approved by the bank.

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Getting pre-approved for a mortgage enables you to move quickly when you find the perfect place. In a competitive market, this lets the seller know that your offer is serious and you can get best deal for your money. A loan commitment letter is issued only when the bank is certain it will lend, so the commitment date on your purchase contract should be closer to closing than to the date of your offer.