Pre Approval vs. Pre Qualification

A pre-approval presents a powerful tool for you toward the purchase of that new home with a minimum of surprises and disappointments. It presents you as a "cash" buyer to the seller.

Anyone who wants to buy a home today should go to their lender first. The understanding of how much can be borrowed presently reduces the possibility of disappointment later. Your lender can provide guidance as to how to prepare and position later on for a home that is currently out of reach.

A realistic understanding of how much loan you can reasonably expect to qualify for is a good first step toward the goal of homeownership. And, a letter of pre-approval can be the mechanism that makes that happen. There is a distinct difference between a letter of pre-qualification and a letter of pre-approval, and it is important that you be aware of this distinction.

Pre-Qualification

PRE-QUALIFICATION - means there's been loan calculations made that show how much you "may" be able to borrow. While pre-qualification can reduce the processing time for home loans, indicate how much house you can afford, and provide a certain leverage in bargaining power, it doesn't necessarily guarantee that such a loan will, in fact, be made by the lender.

Pre-Approval

PRE-APPROVAL – means you actually have a loan waiting, subject only to finding the home and the home appraising at the sales price. The "pre-approval" letter represents an actual commitment on the part of the lender. In order to secure such a letter, it is necessary to complete a formal loan application and pay the associated fees. Credit, salary, and bank funds will be checked, and, if the loan is a good investment, the lender will issue a pre-approval letter, which provides a commitment for a limited period of time, subject to a satisfactory property appraisal and title search.

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