The Difference Between a Pre-Approval and a Pre-Qualification

Filed under: Market Comentary

approvalIf you are in the market and serious about purchasing a home, one of the most important things you can do speak with a lender and get pre-approved. By doing this, it will definitely benefit all of the parties involved because it ensures that you qualify for a mortgage on the home you are interested in purchasing.

In addition, failing to get pre-approved can lead to a lot of frustration and even disappointment for you and anyone involved with you attempting to buy a home. And, in today’s rigid mortgage process, it is simply a must before you attempt to buy that home of your dreams.

A recent article by Senior Mortgage Consultant Ted Rood focused on two mortgage terms that are often, and incorrectly, used interchangeably: pre-qualified and pre-approved. Even though both words’ meanings might vary by lender, in most instances, a pre-qualification is far less desirable and even less clearly defined.

Rood explains that a Pre-Qualification typically means a buyer has communicated with a lender and together, they have discussed the issues focusing on employment, liabilities, payment history, and assets. Actual “verification” of assets, income, and credit “may not” occur with a pre-qualification. In addition, an automated underwriting system has most likely not been run. And, while a Pre-Qualification is better than nothing, it is entirely dependent on a far more thorough process of verification and examination of your credit, assets, and income.

On the other hand, a Pre-Approval entails a strict review of your credit, down payment capacity, income, and asset documentation. You can expect your credit report to be thoroughly dissected, not just verified. Being a potential buyer, the loan officer will possibly run all of your information through underwriting engines if they have any doubts concerning things such as debt ratios, derogatory credit, or employment history and/or income verification. When the system gives you an approval, your approval is then read over in detail, listing any specific requirements for final loan approval.

Rood also says that if all parties involved are aware of the distinction between the two terms, it helps everyone play their role to the best of their ability.

If you are interested in a pre-approval and/or a pre-qualification, please give me a call and we can discuss how to get this started so you can be on your way to being a homeowner.

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