Being pre-approved for a loan is your first step to start looking for property. It gives you an idea of a mortgage lender is willing to loan to you. It’s also gives you a lot more power when you’re searching for real estate – as you can negotiate with sellers based on the amount you’ve been pre-approved for. But pre-approval and pre-qualification are not the same, pre-approval actually is a lot more official than pre-qualification. If you’ve done all the necessaries and have been pre-approved you’re guaranteed to get the loan, right? Not if any of the below happens.
Pre-Approval Vs Pre-Qualifying: What’s The Difference?
When you get preapproved for a mortgage the lender will do a thorough inspection of your finances to determine how much you can afford. Once you’ve gotten an amount you know that any home you’re in the market to purchase you’ll be able to finance up to that amount. Whereas when you’re pre-qualified for a mortgage the lender is giving you an estimate of what you could afford. The amount could be much different when you do decide to get a loan. In real estate terms a pre-qualified buyer doesn’t wield as much power as a pre-approved buyer. And for this reason serious buyers would want to hold on to that pre-approval, especially since they’ve taken the necessary steps and shown that they’re invested.
What Conditions Are Attached To A Pre-Approval?
Pre-approvals come with several terms and conditions, as can be expected when entering a contract. You can expect any one of the following to be included in your pre-approval letter, but you should also read through it yourself and ask any questions about the letter you don’t fully understand.
- Interest rate changes– Your pre-approval is based on the current interest rates. When these rates increase, your borrowing power could decrease.
- A Passed Inspection And Valuation – To get the loan you’ve been pre-approved for your lender may require that the property you want to purchase passes an inspection and has been correctly appraised. If this isn’t the case you won’t get the mortgage as agreed to
- Credit check requirements– When you do decide to purchase your lender will conduct a new credit check regardless of how long its been since you’ve been pre-approved.
- Changes in jobs/assets– Your job and assets are tied to your financial assessment that you underwent when you were pre-approved. If these change your pre-approval could become worthless.
What Could Change Your Mortgage Pre-Approval?
If you’ve been pre-approved the next step you’d have to take is to ensure you remain pre-approved. Big ticket purchases, getting additional credit items, in fact anything the bank feels may negatively impact your ability to pay off the mortgage could jeopardize your pre-approval. So, the next few months may require more frugal spending habits and could seriously hamper your lifestyle. Something else that may jeopardize your mortgage pre-approval is getting a new job. So if you are in line for a promotion, or you’re on the lookout for another job – keep your mortgage professional in the loop. They’ll be able to advise you regarding what is expected of you and how your new job may affect your pre-approval, if at all. You have to remember that part of your initial pre-approval check had to do with looking at your employment history. Any changes to this could render that part of the check void. So, you may need to start the process all over again..
When you’re in the process of purchasing a home you should remain in constant contact with your real estate agent and mortgage lender. If you expect them to keep you abreast with any changes that have occurred you should do the same for them. Keeping the up-to-date on any changes that could negatively affect your pre-approval or your bid to fall through.