Pre-Qualification vs. Pre-Approval
Pre-Qualification vs. Pre-Approval

When you first set out to purchase a new home, the real estate agent(s) and seller will want to know you can actually afford the thing. Heck, you’ll want to know too.

Pre-Qualification

If you choose to finance the home purchase with a mortgage, you’ll need to get pre-qualified first. A “pre-qualification” isn’t as robust as a pre-approval, but it’s a good first step to ensure you can purchase the home you desire (or any one at all).

A pre-qualification is a pretty straightforward, simple check to see what you can afford based on your income/debt levels (debt-to-income ratio), assets, down payment, employment history, perceived credit score, and so on.

You can get pre-qualified very quickly and easily with a bank or mortgage broker, but it won’t carry much weight in the eyes of the agent or the seller.

After all, with a pre-qualification you’re simply supplying estimates and your credit report probably hasn’t yet been run (though it should be pulled early on in the process). That said, a pre-qualification, or pre-qual, is just a determination of what you’d likely qualify for if you made an offer and applied for a home loan.

Pre-Approval

A pre-approval, on the other hand, actually has legs. It’s a written, conditional commitment from a bank or mortgage lender that says you are pre-approved for the financing in question.

It comes only after filling out a loan application, supplying verified income, asset, and employment documentation (assuming these items are necessary), running credit, and underwriting the file.

Acquiring a pre-approval shows the interested parties that you’re a committed buyer, boosting your chances of sealing the deal at the price you want.

Being pre-approved and pre-qualified are not the same thing, so make sure you know the difference before shopping for a home.

To summarize (for you lazy readers):

Pre-Qualification:

First step
Less robust
Based on estimates
Doesn’t require a credit pull
Carries less weight/ not a sure thing

Pre-Approval:

Based on verified information
Must complete an actual loan application
Requires a credit pull
Must be underwritten (manual or automated)
Written conditional commitment

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