Pre-Qualification vs. Pre-Approval

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Real Estate

Pre-Qualification vs. Pre-Approval

Amy and Brad immediately fell in love. It was everything they had dreamed of.  A two-story brick house with a flagstone patio and big backyard. They quickly made an offer and began looking for lenders. Unfortunately, they soon discovered that they couldn’t qualify for the home. They tried to find something else in their price range, but other houses paled in comparison. If only they had shopped for loans before looking at houses…  

One surefire way to reduce stress during the process of home buying is to seek pre-approval, actually applying for a loan before finding a house. The loan agent assembles a credit package that includes a loan application, credit report, income and asset information, and supporting documentation. These documents are then submitted to prospective lenders who underwrite the file, issuing credit approval or denial.

Buyers who are pre-approved are taken more seriously, by the home seller, than their pre-qualified counterparts. Pre-qualification is not a loan commitment from a lending institution; it is only a loan agent’s opinion that you will be able to obtain financing based on your conversation with them. Credit checks and verifications are not usually made so formal approval is not issued. 

Pre-approval, on the other hand, signifies that the lender has taken the application through a rigorous procedure. So buyers with pre-approval status can basically write their own ticket.

Benefits of Pre-Approval

1. If you make an offer on a home and then apply for a loan, you could be at the lender’s mercy. They set the interest rate and points, aware that you do not have as much time to shop around.

2. Understanding your specific price range will save the time spent looking at houses you can’t afford and you will avoid the disappointment that Brad and Amy experienced.

3. Shopping for a loan allows you to settle on a house payment that fits your lifestyle. If you rely on your lender to tell you what you can afford, you may end up with a high mortgage payment. Most people can qualify for more than they would feel comfortable paying.  Always ask the lender for an estimate of the mortgage payment (including taxes and insurance) so you are comfortable with the payment.  If the payment is too high, either lower the purchase price or make a larger down payment on the property.

4. Having a pre-approval letter from a lender gives you an edge in a situation where multiple offers have been made on a house.  A good Realtor will explain the differences in a pre-approval letter versus a pre-qualification letter to the seller.

5. In most cases, pre-approved buyers can close the purchase more quickly. Once you submit your credit package, to the lender, the process has begun.  


Remember, neither pre-approval nor pre-qualification are absolute loan commitments. Lenders must still assess property appraisals, verify information, and, in many cases, verify credit before funding the loan.

If you have questions regarding the home purchase process, give us a call!