The Mortgage Buddy fields a lot of questions from prospective home buyers about the difference between obtaining a mortgage pre-qualification letter and a mortgage pre-approval letter. There are significant differences and understanding these differences will help you better prepare yourself to be ready for this year’s spring real estate market.
One of technologies many wonders is that it has provided a fast track when looking for mortgage financing. Mortgages generate a considerable amount of revenue for the banks, and because of that, banks and lenders are willing to spend millions of dollars a month on commercials, stadium naming rights, and those wonderful pop-up ads. You could be reading an article on your favorite site then a pop up ad with casino lights and bright colors appears on your screen and a few clicks later some lender is informing you that you have a pre-qual for $250,000 to buy a new home. To most that sounds like you can now buy that home you were thinking about, but not so fast. How much information have your really provided this “pop-up lender”? A pre-qual is just an estimate, and when you are looking to make the biggest financial investment of your life just having an estimate isn’t the type of confidence you or your MA real estate agent is going to need to start spending time traveling to the various weekend open houses.
As you search online you will find there are several articles out there that will help you understand the difference. It’s important to learn from the point of view of a mortgage professional and also a MA licensed real estate agent. One article that I found particularly informative from a Realtor’s point of view was written by Bill Gassett of Re/Max Executive Realty. Bill has contributed content as a Guest Blogger to the site in the past and we hope to continue to lean on his valued opinion as a MA licensed real estate agent in the future.
What’s a Pre-Qual Letter?
Try to think of a pre-qualification letter as an estimate of what you will be approved for in terms of mortgage loan amount. When the lender is working with you to obtain a pre-qual you will be asked merely general questions about your employment history, income level, downpayment availability, and possible credit rating. A pre-qual can be a good starting point to get an idea of what is going to be a comfortable monthly payment for you. What’s nice about a pre-qualification letter is that you don’t need to pull your credit or spend time gathering paperwork to obtain one, but on the flip side the pre-qual isn’t as bullet proof as its pre-approval cousin. Because the requirements are limited, the pre-qual doesn’t carry the same value with a real estate agent as a pre-approval will. So remember not to rely on a pre-qual, it’s just an estimate and should be treated that way.
Mortgage Buddy Option:
If you would like to find out the potential purchase or refinance pre-qual letter you could obtain and you aren’t ready to talk to a mortgage professional or maybe you just don’t have the time right now there is a great option; Consider download the free Mortgage Buddy app for smart phones and tablets. We designed this application to be a stress free commitment free way to find out what you can afford. The Mortgage Buddy app has all the functions of your basic mortgage calculator but it also provides you the capabilities to include your monthly income and liabilities so you can discover what your debt to income ratio will be. The debt to income ratio number will also trigger a comment as to whether a conventional or government loan might be best for your specific scenario. Best of all it’s free and saves time.
In part two of this series we will provide the reader a greater understanding of what the pre-approval letter means for your home buying adventure.
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