Pre-Approved vs. Pre-Qualified

Being pre-qualified for a mortgage simply requires you to provide your lender/bank with all the necessary financial details including assets, income, and debts among others. The lender then reviews every detail to their satisfaction before giving you an estimate of how much you can qualify to borrow from them. A pre-qualification does not involve any costs and can be done online or over the phone. By and large, a pre-qualification is solely based on the information you provide to the lender. The lender will give you details of what to expect from them based on the information you handed over. A pre-qualification doesn’t rely on the accuracy of the provided details, unlike a pre-approved home loan which requires thorough investigation.

Buyers need a Pre-qualification letter to make an offer in the real estate market. Some sellers are very cunning and will do everything in their power to avoid entering into contracts with buyers who cannot honor their contracts. Most of them will always ask about your pre-qualification status and even insist on keeping a copy of the pre-qualification letter in their files. In general, a pre-qualification is an inferior yet essential type of a pre-approval letter. Mostly, it is issued by lenders explaining that you applied for a loan but without verifying whether it’s approved or not. Unlike the case with a pre-approval, buyers with a pre-qualification letter can always back out from the contract if the lender decides against approving their loans without consequences.

Getting pre-approved for a home loan takes you closer to your dream home as compared to a pre-qualification. A fully underwritten pre-approval letter simply means that your loan has been approved fully. Unlike the case with a pre-qualification letter, a pre-approval letter is only given after the lender has fully verified that all the documentation or details including credit scores, debt to credit ratio, employment, and assets you provided are accurate. To get a pre-approval letter you’ll need a home appraisal. A pre-approval is technically the definitive word that your loan will get approved while a pre-qualification indicates your borrowing prowess and creditworthiness. Buyers are expected to provide all the right documentation and their financial background details for scrutiny by the lender. In addition, buyers must make an official mortgage application to qualify for a pre-approval letter. An application fee may be required for a pre-approval, unlike the pre-qualification. The beauty of a pre-approved letter is that it boosts a buyer’s confidence when shopping for a home since they know the exact amount to expect from the lender.

In general, getting pre-approved takes you a step closer to your dream home. It’s also an indication that you are indeed a serious buyer in a highly competitive real estate market.