Mortgages: Pre-Qualification vs Pre-Approval? What is the Difference?
So which is better and which should you get… pre-qualification or pre-approval? What do they mean and what is the difference? You often hear the two terms thrown around when talking mortgages and financials so let’s break them down.
First just know these two terms can be interchangeable to some loan officers and lenders so be sure to ask for clarification.
Pre-Qualification is considered to be the easier of the two and involves less information. Let me explain. First in this scenario you provide your limited information to either a loan officer or even a website and almost immediately you get a response. Either yes you are pre-qualified and for how much or declined. However please know that there was no verification involved and this is the key difference. You could have lied to a computer or loan officer and based on your information they make a decision. When you get a letter from the lender with a pre-qualification it usually is not taken as seriously due to the lack of verification.
Pre-approval on the other hand is the same except there is actual verification. Now instead of just entering your income you will need to provide proof of your income such as bank statement, tax returns and pay check stubs. If you have assets those will need to be verified as well as your employment. As you can see this takes more effort however due to the verification it carries more weight in comparison to a pre-qualification.
So what does this actually mean to you when you start shopping? A pre-qualification will have a bit less meaning than a pre-approval to a seller who receives your offer. Knowing there has been some verification involved will make the seller more confident in a pre-approval as opposed to a pre-qualification.
Now do you want to take it up a notch and be fully approved? This is even more verification and even involves the lender’s underwriter. Just know at this type of approval you are fully approved meaning everything is verified and all questions the lender may have to give you a loan have been satisfied. At that point the only thing between you and a loan is finding a home. You can read more about fully lender credit approval here.
With a heart of a teacher I look to educate my clients about the process of buying, selling or renting real estate. I strongly feel an informed and educated consumer will make better decisions and be less likely to be taken advantage of.
Have questions about this or other topics, don not hesitate to contact me.
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Luis Cuevas, Realtor®
RE/MAX Cross Country
1990 Justin Road
Highland Village, Texas 75077
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