Pre-Qualification vs. Pre-Approval

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Real Estate

Pre-Qualification vs. Pre-Approval

Collin and Lauren are interested in seeing a two-story with a brick patio and big backyard. They quickly call the agent to schedule a showing.  The agent asks if they have been pre-approved;  they tell her not yet  because they are certain they will  quality because Collin has gotten a raise at work.. They see the home and fall in love.  Lauren is already  visualizing where she will put the furniture and Collin is organizing his new office space. Unfortunately, they soon discovered that they do not qualify for the home.  They begin looking at homes in their price range, but other houses paled in comparison to the two-story they fell in love with.  They were left feeling like they were settling. So before you start looking, know what you quality for first.

If you need a lender recommendation ask your real estate agent.  The pre-approval process is fairly easy.  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 than buyers who have been pre-qualified. Pre-qualification is only a loan agents opinion that you will be able to obtain financing. Verifications are not usually made so formal approval is not issued. These days, virtually anyone can achieve pre-qual status.

Pre-approval, on the other hand, means that the lender has taken the application through a rigorous procedure. 


Benefits of pre-approval:

1. If you make an offer on a home and then apply for a loan, you've lost your opportunity to shop around for lenders. 

2. Understanding your housing budget will save the time spent looking at houses you can’t afford.

3. Most people can quality for more than they would feel comfortable paying.  Shopping for a loan allows you to chose a house payment that fits your budget.  

4. Having a pre-approval letter from a lender gives you an edge when making an offer on a house and gives seller piece of mind that you are a serious buyer.

5. Pre-approved buyers have already done most of the legwork and can generally close escrow more quickly. 


Remember, neither pre-approval nor pre-qualification does not mean loan commitments. Lenders must still assess property appraisals, verify information, and, in many cases, verify credit before funding the loan.