What is a pre-approval or pre-qualification letter?

Pre-Approval or Pre-Qualified?

If you are serious about buying a home, obtaining a mortgage pre-approval early in the process, can greatly enhance your negotiating power and will give you a valuable competitive edge. 

With you purchasing power known, house-hunting tours can be focused on homes in your price range.
When you make an offer, sellers, will view yours more favorably because having a mortgage pre-approval removes any doubt about your ability to obtain financing and might even make the difference in getting the home you want - or someone else getting it.  When negotiating to purchase a home your offer and counter offer strategies can be crafted based on the terms that are best suited for you.  For instance, you may benefit more from seller paid points or closing costs than from a lower selling price or vice verse, depending on the lender's terms.  It is critical for you to know the best strategies up front because it is nearly impossible to re-negotiate a contract later.

Finally, do not mistake mortgage pre-qualification for mortgage pre-approval. 

Mortgage pre-qualification has little or no value because it is only based on the answers given to a simple, brief interview by the lender. Mortgage pre-qualification gives not guarantee that a loan will be granted.  In contrast, mortgage pre-approval means that an application has been completed and reviewed, a credit report as been obtained and the lender has agreed to loan a specific amount of money to the buyer.