When you’re shopping for a mortgage, you may encounter two terms that sound the same but have different meanings: “pre-qualification” and “pre-approval.” Both pre-qualification and pre-approval are intended to provide the likelihood of you qualifying for a mortgage loan but, there are differences you should understand.
A pre-qualification, lenders use financial information you usually provide verbally such as current income, your assets and debts and rough credit score in order to make a preliminary assessment of whether you may qualify for a mortgage and for how much you may qualify for. This is preliminary because the lender is only working off the information you provide without actually verifying that everything you’ve given them is accurate, up to date and comprehensive.
A pre-qualification is valuable because it provides you, the borrower, a general indication of how likely you are to qualify for a mortgage if what you provided can be verified and documented. Pre-qualification letters can also assist the homebuying process as follows.
It can save you time by helping you limit your search to homes you’ll actually be able to qualify for
It gives your offer more credibility with sellers and sellers agents
It can assist your agent in better serving your real estate needs
A pre-approval extends your credibility by requiring you to provide full documentation of your current and past financial situation. This normally includes tax records, proof of income, bank and investment statements and much, much more. Lenders will verify your information and order and review your credit report before making a decision.
In highly competitive real estate markets where a property may have multiple offers, a pre-approval can help you rise of above others buyers since it shows that you’ve already been approved from a credit standpoint. It also shifts the documentation phase up in the process instead of during crunch time before closing, this saves a lot of time, which sellers feel comfortable about.
Ensure you pick the right lender, not one who just spits out prequel and preapproval letters in hopes of winning your business.
Providing Solutions Because…Your Move Matters!
Michael L. Brownstead
First Sergeant, U.S. Army (Retired)
ABR, GRI, MRP, SRS, REALTOR
Keller Williams Realty
1002 Raintree Cir., Ste. 100, Allen, TX 75013