The Difference Between a Pre-Qualification vs. PreApproval
There is plenty of real estate terms used in transactions. Needless-to-say it can be confusing
for both buyers and sellers trying to navigate the process.
The home loan process might feel overwhelming and difficult to understand. Both buyers and sellers find terms like “PreQualification”
and “Pre-Approval” used interchangeably, it’s no wonder they find themselves
wondering how to proceed.
The first step in obtaining a home loan is to meet with a lender and discussing their financial
situation. The lender will discuss income, job stability, debt and credit. Once they have
performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification
Letter to the potential buyer. This letter will identify the maximum sales price, down payment
requirement and basic terms of the loan, such as interest rate.
The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a
lender who is vouching for their ability to obtain a loan.
A Pre-Approval is quite different. In this case, the lender collects all the necessary information
and proof of eligibility and has it reviewed by the lender underwriter for approval. A PreApproval
letter is almost like shopping with cash, the only remaining piece of the puzzle is the
property they are buying.