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Buying a House? Which Is Better, a Pre-Qualification Letter or a Pre-Approval Letter?

April 09, 2012 | Comments: 0 | Views: 292

Whether you're planning on buying your first house or your fifth, agents will take you more seriously if you have either a pre-approval letter or a pre-qualification letter. This is especially important in a hot housing market where people are bidding up the home prices above the asking prices. While it's fine and dandy to be the highest bidder on a particular house, but if you don't have a lender behind you the homeowners are more likely to take the next guy in line that does have one. If you have one of the two letters sellers know you can actually do what you say you will do. So which is better to have, a pre-qualification letter or a pre-approval letter?

First you have to know what each one actually is so you can tell which one is better to have when you make an offer on that perfect house you've been eying.

A pre-qualification letter just gives you an idea of how much money you could qualify to borrow. The lender has not seen any documents supporting what you are telling them. They are taking your word that you make $12,000 a month and have sterling credit. You may be thinking that that mortgage late on your report is no big deal, not realizing that it is going to knock you from prime to subprime borrowing. A loan officer just uses a template, puts your name in the proper place and emails or hands it to you ten minutes after you have requested it. They have given you the pre-qualification letter on good faith that everything you are telling them is true and accurate. That's a pre-qualification letter for you.

The other type of letter you might request is a pre-approval letter; this one carries much more weight as you will soon see. A pre-approval letter means that you have given the lender certain information like income, assets, and liabilities, and that information has been verified. If your lender has not pulled your credit, or asked for permission to do so, you should request it. If I'm buying a house I want to make sure there is nothing on my report that might keep me from that dream house I have my sights set on. Now just because they have done all that and you have a pre-approval letter in your hand, it doesn't mean they will actually loan you the money. It's the next best thing though. Now if you show up to put out an offer on a house, you will be taken seriously with that letter in hand. You and the seller can rest assured that you are likely to be able to get the loan if they accept your offer.

So there you have it, the difference between a pre-qualification letter and a pre-approval letter. If you cannot get the latter, take the former; you will be taken more seriously than buyers who have nothing in hand. Good luck and happy buying.

Shopping for Los Angeles Homes for Sale? Come visit now.

Source: EzineArticles
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