The Difference Between a Pre-Qualification vs. Pre-Approval
There are 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 “Pre-Qualification” 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 to discuss your financial situation. The lender will gather information regarding income, job stability, debt and credit. They will then issue a pre-qualification or pre-approval.
Once the lender has performed a basic review of the qualifications and run credit, they will issue a pre-qualification letter. 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 takes the process a bit further. After the lender collects all the necessary information and proof of eligibility he has it reviewed by the lender underwriter for approval. Once obtaining a pre-approval letter the only remaining piece of the puzzle is finding a property.
It is best to start this process before you begin your home search. Your real estate agent should be able to point you in the right direction and recommend lenders if needed.