Pre-Qualification vs. Pre-Approval

Many use the terms pre-qualification and pre-approval interchangeably. While both give some indication of whether or not a potential home buyer can qualify for a mortgage and for how much, there are significant differences that a potential home buyer should understand. Most real estate professions emphasize the importance and require their buyers to obtaining a pre-approval before shopping for a home.   

Pre-Qualification:

A pre-qualification is a lenders informal decision of loan qualification and maximum amount an individual can borrow. Lenders will base their decision upon credit, employment, income, assets, and debt structure. Most pre qualifications can be completed over the phone or by sitting down with a lender in a matter of minutes. While this maybe convenient, it is an informal process this does not include any verification of income, assets, or credit history. The information is usually based upon verbal confirmation.

Pre-Approval:

While a pre-approval looks at the same information, it enters a formal verification process. Supporting documentation is requested and verification of income, employment, and credit are performed. All the underwriting would be complete with the exception of  a satisfactory property appraisal and clear title. By having a pre-approval a buyer can now shop with confidence and increase their negotiating power with sellers. It will also increase the overall closing timeframe once a property is located and save buyers and agents time by looking for the right home in the right price range. 

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