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Pre-Qualified or Pre-Approved?

May 30, 1999

Abir Bisharat thought she had everything under control when she found the house she wanted to buy. Little did she know there are numerous hazards that can scuttle any real estate transaction.

In Bisharat's case, she was done in because she thought she had been OK'd for a mortgage when she really wasn't. The Upland bookkeeper had been pre-qualified by a loan broker, not pre-approved.

It's a common mistake. Most people don't know the difference, but Bisharat didn't find out until five days before she was to close on the house that her application had been rejected.

The lender not only was worried that she didn't have any major savings accounts, it also wanted to know how she could afford $500 a month more than before to put a roof over her head.

By the time Bisharat was able to satisfy the lender's concerns, it was too late. She had missed the closing date and the seller had changed his mind, deciding to keep the place after all.

It was a tough lesson for Bisharat. "I thought I had it," she said. "If I had been approved, I would be living there now."

What went wrong? Bisharat was pre-qualified. That means that based on the information she provided verbally, the broker estimated she could afford a $152,000 mortgage.

But to be approved, a credit report has to be ordered, check stubs have to be supplied, bank statements have to be checked and W-2s or 1099s have to be verified. Only after all that will a lender make a loan for a specific amount at a certain interest rate.

It's important to understand the difference. But here's a clue: If the lender has not asked for documentation, chances are you don't have a firm commitment.

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