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What’s the difference between a Pre-Qualification and a Pre-Approval???

There are a TON of real estate terms used in every day transactions. Sometimes, this can make the home loan process feel overwhelming and difficult to understand. Rest assured, your favorite Realtors® are here to handle it for you! 

But what do terms like “Pre-Qualification” and “Pre-Approval” really mean? They are sometimes used interchangeably, which may be confusing for both buyers and sellers. A Pre-Qualification and a Pre-Approval are two very different things. During your home buying/selling process, you’ll want to know the difference! If you’re still wondering how to proceed, let us explain!

 Pre-Qualification

The first step in obtaining a home loan is to meet with a lender and discuss your current financial situation. Your lender will discuss your current income, job stability, debt, and credit. Once they have performed a basic review of your qualifications, they will also run your credit. After they have made certain that you meet their loan criteria, they will issue you a Pre-Qualification letter. This letter will identify multiple things for you. Such as: the maximum sales price you can afford, what your down payment requirement will be, and basic terms of the loan including interest rate.

The Pre-Qualification letter is used to provide evidence that you have been reviewed by a lender.  Basically - the lender is vouching for your ability to obtain a loan.

Pre-Approval

A Pre-Approval is quite different. For a Pre-Approval, the lender will need to collect all of the necessary information/paperwork regarding your income, credit, and proof of your eligibility for the loan. The lender will have all of your information reviewed by an underwriter, who will then issue the Pre-Approval Letter. Having a Pre-Approval Letter is basically like shopping with cash!

Buyers should always obtain a Pre-Approval before viewing potential homes in person. Sellers want to know that they are not wasting their time by showing their home to anyone who wouldn’t realistically be able to buy. Additionally, sellers may not be willing to entertain purchase offers from buyers who have not yet been Pre-Approved.