What’s the Difference and Why Is It Important in a Competitive Market?
Today, let’s take a moment to look at an important yet commonly misunderstood part of the home purchasing process, pre-approval and pre-qualification. The difference between the two is more than semantics. It is very relevant in a hyper-competitive buyer’s market like we have here in Colorado. After all, put yourself in the seller’s shoes. Who would you call back first? The interested buyer who has all their bank ducks qualified and approved in a row, or the one who hands you a dog-eared business card? Think of this as a two-step process rather than an “either/or.”
When you pre-qualify for a loan, it’s simply a ballpark projection of your borrowing limit or spending budget based on the cursory financial data you provide. Kind of like shopping for a car with the dealer’s online calculator. This is, however, when you work with your lending team (like us!) to educate yourself on the myriad of lending options ahead of you. Pre-qualification is usually quick, free, and you receive a letter which is kind of like a promise ring. You’re not engaged but you’re telling the potential seller that you’re ready to go steady. While a pre-qualification is not a binding financial approval, it demonstrates that you’re not wasting their time window shopping with your wallet at home. This leads us to step two.
Pre-approval is much more serious because you’re seeking a conditional green light for a real loan. Pretend your shrink has gotten you over those decades of trust issues and now it’s time to go ring shopping. You invite a bank to confirm exactly how safe a bet you are, even though it’s technically without a specific home contract in place. You fill out all the forms, supply all the data, and get your credit um, probed. Like above, being pre-approved makes you substantially more attractive in a seller’s eyes only this time the bank’s love letter includes an official 120-day eligibility period. Remember, this is not a final, final, final commitment (did we mention it’s not final?) because they will still have to confirm right before the deal closes that nothing in your life has suddenly changed. Pregnant? Congratulations! Federal indictment? Maybe not. This isn’t 2007.
That was the quick and dirty. We wanted to make it easy to digest but if you’re ready to roll up your sleeves and make all of this happen give us at The Rueth Team a call.