The Difference Between Pre-Qualifying And Pre-Approval
What they don’t realize is that these are two completely different things, and mistaking one for the other can cause home buyers a lot of trouble.
So, what is the exact difference between pre-qualification and pre-approval?
Pre-qualification is just an estimate. It is an informal way to see how big a mortgage you might qualify, based on “verbal” information given only. It should be free of charge, and usually just involves the buyer giving the banker their overall financial picture, including their income, debts, and how large a down payment they will be able to afford. No credit report is required and the buyer’s overall ability to buy a house is not taken into account.
A lender can use the provided information to give the buyer an estimation of the approximate mortgage amount they can expect to qualify for. Because the pre-qualification does not take into account everything, and is based solely on the information you verbally submit, there is no guarantee that the pre-qualified amount will be the same as the actual approved amount.
Pre-approval, on the other hand is a real commitment a lender makes to the buyer. It is a much more complex procedure than pre-qualification but it carries actual value. Pre-approval requires the buyer to give the necessary information to the Banker
Pre-approval requires the buyer to give the necessary information to the banker to have credit pulled and supply all the necessary financial documents the lender needs to do an extensive check on the buyer’s financial background. The lender will be able to use this information to determine a specific mortgage amount to approve the buyer on, and the best program options available for a buyer to compare. The pre-approval is a commitment made in writing for an exact loan amount, based on the rates “at that time”. It shows the buyer where he or she stands financially and shows sellers that the buyer is serious about buying and able to obtain the necessary financing.
Although pre-qualification is a fast and easy way to get a general idea of what you can expect to get, there is little value to it as it’s not exact. The only result you can rely on is the one that comes from lender pre-approval.