Financing Your New Silicon Valley Home

Pre-Approval vs. Pre-Qualification

Talking to a lender is often a smart first step in buying a home. If you need a mortgage, a lender or mortgage broker can quickly tell you how much you’re qualified to borrow, and get the paperwork started. Having this conversation early will add certainty to the rest of your buying process, and help you avoid disappointment when it’s time to close the sale. It will also help in dealing with sellers, many of whom require a Pre-Approval or at a minimum a Pre-Qualification letter from a potential lender before considering your offer. A guarantee from your lender/ mortgage broker on a mortgage is called pre-approval. You can also make calculations toward your mortgage without speaking with a lender – this is called pre-qualification.

What is Pre-Qualification?

Pre-Qualification means there have been loan calculations made that show how much you “may” be able to borrow. While pre-qualification can reduce the processing time for home loans, indicate how much house you can afford and provide certain leverage in bargaining power, it doesn’t necessarily guarantee that such a loan will in fact be made by a lender.

How is Pre-Approval Different from a Pre-Qualification?

Pre-Approval means you actually have a loan waiting, subject only to finding the home and the home being appraised at the sales price. The “pre-approval” letter represents an actual commitment on the part of the lender. In order to secure such a letter it is necessary to complete a formal loan application and pay the associated fees. Credit, salary and bank funds will be checked, and if the loan is a good investment, the lender will issue a pre-approved letter that provides a commitment for a limited period of time, subject to a satisfactory property appraisal and title search.

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