Monday, June 19, 2006

Maximizing Your Purchasing Power

I hope everyone had a enjoyable weekend and Happy Fathers' Day. Today I'll discuss the differences between pre-qualification and pre-approval of a home mortgage.

When you go to make an offer on a property, you can maximize your purchasing power by coming to the table already pre-qualified or pre-approved for financing by a mortgage lender. you can go to the seller and say "I've got pre-approval for a loan that is enough to purchase this home..." This makes you far more attractive to the seller, than a person who isn't already approved, but makes the same offer (or more because they know your ready now.)

Here's some info on the differences between the two:


  • Pre-qualification is ususally free.
  • Provides and estimate of your buying potential.
  • A Lender or Broker will review your credit report, earnings & savings, debt, and other information to get an estimate of the amount of mortgage the borrower will qualify for. This usually is based off of documents the borrower has on hand, or from what the borrower tells the lender.


  • Some, not all, lenders charge you the nominal cost of your credit report in order to get pre-approved.
  • The lender will verify all provided information of employment, assets, and income.
  • In return the lender will provide a letter of mortgage approval for a certain amount to the borrower.
  • Pre-approval can also speed up the process of coming to a final purchase price with the seller.

Once the seller accepts your offer and you agree on a purchase price, you will both sign a Purchase and Sales Agreement (contract). This agreement spells out all the terms and conditions that each party must meet for the sale to go through. Generally, these conditions include the buyers ability and timeline to obtain a loan and the completion of certain property repairs by the seller. These documents can be fairly straightforward, but you should read them carefully just the same.

Also, be mindful, that if your financial situation changes (you apply for new credit cards, auto loans, etc...) before the closing of the loan for the purchase of the property, you must contact the lender. The loan prequalification or pre-approval may no longer be valid.


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