Buyer’s Series: Pre-Approved vs Pre-Qualified

You will hear the terms pre-approved and pre-qualified thrown around. In the real estate world, these are very different and it’s important a buyer know the difference. It’s also essential to know that many realtors will not show properties to a buyer who isn’t pre-approved. Being pre-approved also shows a buyer is serious and trustworthy should they submit an offer.

Pre-Qualified

Pre-qualification is a less formal process to estimate how much you may be able to borrow. This process varies by lenders and may consist of you explaining to the lender your debts, credit, income, and assets. The lender may do a credit check which results in a soft inquiry which could cause a small drop in your credit score. You will want to check with the lender if a credit check is done.

Pre-qualifications can be done online, by phone, or in person. This process will provide you with an idea of whether you are financially ready to continue down the path to home ownership or if you need to continue working on your financial status.

Pre-Approved

The process of getting pre-approved is more detailed. The buyer will be required to provide proof of income, employment, assets, and debts to the lender. These items will be verified by the lender and a credit check will be completed.

If you are pre-approved, you will receive a pre-approval letter from your lender. The letter will indicate the amount the lender is willing to loan, as well as the type of mortgage and mortgage terms.

You will provide your real estate agent with the pre-approval letter, providing them with the knowledge of your price range. This will allow your agent to find listings in line with your budget. The pre-approved letter will also accompany your offer.

Although you have gone through the pre-approval process, it is not a guarantee of being approved for a mortgage. Once you are under contract for a home, your application must go to the lender’s underwriting department. A full review of your finances will then be done and a home appraisal will be completed to establish an estimate of the value of the property.