What does it mean to get pre-approved?
There are many benefits of getting pre-approved that you should know about before you begin searching for a home. This is a very important first step and it helps you determine how much you can really afford to spend on a home. Getting pre-approved requires that the lender verify your financial information and serves as a commitment to lend a specified amount based on that information. As a result, this gives you significant buying power with a seller who recognizes you will be approved for a loan.
What does it mean to get pre-qualified?
Getting pre-qualified is basically an informal discussion between borrower and lender. The lender estimates the amount that you can borrow based solely on what you tell them about your income and assets. The lender does no verification and is not bound to make the loan when you are ready to buy.
How is getting pre-approved the better option?
To a seller, a lender's pre-approval letter is considerably stronger than a pre-qualification letter.
Loan pre-approval is based on documented and verified information regarding your employment, your income, your liabilities, your assets and the cash you have available to close on a home purchase. If a seller knows your financing is secure, your offer is stronger.
Getting pre-approved also offers you these benefits:
A Transaction Tool.
Sellers will look at you as a stronger buyer (in essence a cash buyer). If a seller has more than one offer, you could win (at no cost).
A Definite Time Saving Tool.
You have a definite picture of what you can afford versus an estimate. You won’t spend hours inspecting homes you can’t afford to buy.
It Will Give You Peace of Mind.
You will know upfront what the home will cost you. There's no point in falling in love with something that you cannot afford to buy in the first place.