In today’s fast-paced real estate environment, home buyers need every possible advantage. Coldwell Banker has made home buying simpler by helping buyers get “pre-approved,” and not merely
“pre-qualified.” What is the difference?
Pre-Approval vs. Pre-Qualification
What could be more comforting than the peace of mind that goes with knowing your mortgage is fully approved?
You will have a greatly improved negotiating position when you are pre-approved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The pre-approval letter lets the seller know that they are working with a serious buyer. A pre-approved buyer can also close on a property more quickly – another major consideration for a motivated seller. Obtaining a pre-approved mortgage is essential in a “sellers’ market” or where supply is limited.
Pre-Approval uses basic information as well as electronic credit reporting. It is a true mortgage commitment; a commitment to financing your home and an indication of the total mortgage amount available to you. Mortgage lenders can help you through the pre-approval process. In most cases, there is no charge for this service. Ask your Sales Associate for more information.
Pre-Qualification, however, is not a full mortgage approval, but an estimate of what you can afford. When you pre-qualify for a mortgage, the lender collects basic information regarding your income, monthly debts, credit history and assets. This information is then used to calculate an estimated mortgage amount.
Of the over 50 different mortgage types available, the two largest categories are fixed and adjustable rate mortgages, each with advantages to consider.
Fixed vs. Adjustable Rate Mortgages
Fixed Rate Mortgages
The fixed rate mortgage is a traditional method of financing for a home. The interest rate stays the same, or fixed, for the entire term of the loan – usually 15 to 30 years – so the interest and principal portions of your monthly payment remain the same.
Fixed rate mortgage payments are stable and predictable, but initial interest rates tend to be higher on a fixed rate mortgage that on adjustable rate loans. Many fixed rate mortgages cannot be assumed by a subsequent buyer.
Adjustable Rate Mortgages
The interest on an adjustable rate mortgage (ARM) is linked to a financial index, such as a Treasury security, so the monthly payments can vary over the life of the loan – usually 15 or 30 years. Most adjustable rate mortgages have a lifetime cap on the interest rate increase to protect the borrower.
The lower initial payments on ARMs make it easier for buyers to qualify. Some ARMs may be converted to fixed rate mortgages at specified times, usually within the first five years.