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What is the difference between a pre-qualification letter & pre-approval letter from your bank?

By : | Add Comment | On : 9:42 pm | Category : Uncategorized

As you begin searching for the home you have been dreaming of, it is important to think about the loan that will help you make this dream a reality. It is important to get pre-approval from a bank before beginning the hunt for your dream home. This will prevent your dream from turning into a nightmare. No one wants to find the perfect home and then have their loan application denied. Not only do pre-approvals help to determine the price range you can afford so that you are not wasting your time looking for a home that is out of your price range, but they also give you a bargaining tool when making an offer to the seller.

When you are pre-approved for a mortgage, a lender has looked closely at your credit report and income in order to determine that you qualify for a loan. The lender will tell you which loans you qualify for, the maximum amount you are eligible for and possible interest rates that are available to you. Pre-approval letters are formal agreements between the buyer and lending institution that offer a guarantee of loan approval for a specific amount. The financial institution issuing such a letter may or may not charge for this service. Keep in mind that even with a pre-approval letter, your bank may deny the loan on the specific house you wish to purchase. As one example, banks will deny the loan for a specific property if the appraisal is significantly less than the sale price.

Pre-qualification letters are different from pre-approval letters in that they do not include an analysis of your credit report or your true ability to purchase a home.  All it means is that someone has taken a general look at your income and expenses in order to determine your debt-to-income ratio. This gives you a general idea of the price range you can afford. There is no charge to obtain pre-qualification letters.

Pre-qualification letters are a good idea to obtain so that you have an idea of the price range to begin looking at. However, as soon as you are seriously looking for a new home, it is important to get pre-approval. This will save you time and give you more buying power.

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