First Home Buying

Before a buyer’s agent will take you out to look at properties for sale, you need to furnish what’s called a lender letter. You may be a willing buyer, but the lender letter shows the agent that you’re an able buyer as well – it’s proof that your personal financial information has been reviewed and the lending company has decided that, as long as everything you told them about your financial status is true, you will likely qualify for a loan for X amount of dollars. The letter gives an exact amount, which is the maximum value of the loan they’re offering to give you.

Many people don’t realize that there’s a difference between being pre-qualified and pre-approved. They think, “great, I’m pre-qualified! Now I can go out to find my dream house and buy it right up!” But being pre-qualified only means that you look good at first glance. The lender letter only comes after you’ve been pre-approved; pre-qualification is nothing more than an unofficial verbal confirmation that you have the means to make a mortgage payment.

First Glance or In-Depth Look?

Have you ever gone to a play at the theatre and remarked on how good the lead actor or actress looked from your seat in the 25th row? After the production is over and the cast goes back to stand in the lobby for meet-and-greets, some of these actors and actresses don’t look quite as good, do they? Then again, others may be just as pleasing to the eye up close as they were from afar. The same concept is true when it comes to being pre-qualified; it just means that the lender has a basic overview of your finances and has said “okay, this looks pretty good. Here’s how much you could probably get.”

The pre-approval, on the other hand, is that close-up look. It’s where the lender gets down to crunching some more numbers and gets to the point where they can tell you “hey, here’s an offer in writing.” Once pre-approval has taken place, they’ll send you that all-important lender letter that tells your real estate agent that you are indeed ready for the bigtime.