Pre-qualified vs Pre-Approved

People often mistake being pre-qualified for a mortgage for being pre-approved for a mortgage. Being pre-qualified means that a lender has determined how much mortgage you can afford by looking at how much money you make and what your debts are and applying their fancy ratios. They have not likely confirmed what you’ve told them (with credit checks and employment confirmation letters), nor have they guaranteed you an interest rate or mortgage terms.

Mortgage pre-approvals are in writing – so if you don’t have something in writing (probably valid for 90 or 120 days), then you aren’t actually pre-approved. Having a financing condition in your offer gives you the opportunity to confirm everything with your lender and is one of the most important ways of protecting yourself.

These days, banks are often looking to approve people for a mortgage for a particular house – they want to know that the home they are purchasing with you is worth what you paid.  They may order an independent appraisal of the house and will lend you money based on that appraisal. Again, a financing condition can protect you.

Financing conditions generally last for 3-5 days, giving you time to sort out your finances. At the end of that time period, you’ll be asked to sign a ‘waiver’ or ‘fulfilment of condition’ and your offer will no longer be dependent on your financial situation.

If you find yourself in a bidding war or some other high-pressure negotiation where financing conditions aren’t likely to be accepted by the Seller, there are ways of being fully approved by your lender BEFORE you make an offer, thus enabling you to make an offer without a financing condition. A good Realtor and lender can guide you through this process.

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