Mortgage Financing Contingency

If the buyer applies for mortgage, he will be contingent upon his/her financing. If you are a seller, it helps to check pre-approval and/or pre-qualification letter from the lender before offer accpetance, but buyer will still reserve the right to be contigent upon financing. (finacing clause)

First of all, what is the difference between Pre-Approval vs. Pre-Qualification?

Usually, pre-approval simply means interview with a lender, and lender's confirmation how much you can afford depends on information you provide to the bank.

Pre-qualification is based not only on interview, but also your credit check and few more paperwork you were required to bring: W2s, employment history, etc.

In other words, pre-aulification is more than pre-approval.

Second of all, while above mentioned financing clause is good at taking care of the most situations, if I represent buyer and if the byer is shopping around for loan, I suggest to add disclosure something like this " This ofer is subject to the Buyer's approval of the terms and conditions of any mortgage financing that the Buyer may apply for".

As a seller, you should clearify this statement and establis some time of boundaries. Not to have it as a deal breaker, it is better to buyers to know exactly what loan they are qualifing for before writting an offer.

Tomorrow, I will discuss what does it mean to apply for the loan, and what is procedure if the loan is denied?