Home > Blogs > Tamara and Gary James > Tamara and Gary James's Blog

What's the Difference Between Pre-Approval and Pre-Qualification

By Tamara and Gary James

Real Estate Agent with Exit Elite Realty

May 04, 2013 12:22 PM

What's the Difference Between Pre-approval and Pre-Qualification?

I find most potential home-buyers don't have a clear understanding of what the differences are between being pre-approved vs pre-qualified for a home mortgage. With the current Real Estate Market on the rise, I try to educate my clients on the differences. The last thing I would want to see is a happy client whom has found the home of their dreams slip away because they thought they were pre-approved for a home loan.

When you break down the differences between the two, it really does not seem that obvious but on paper it tells another story! Lets take a look at the differences.

Pre-Qualification: In short is when the potential home-buyer contacts a lender for qualification on a home mortgage. The lender collects personal identifiable information(PII) from the borrower and gives a contingent estimation of what the lending institution desires to loan the borrower. The lender will look at the borrowers income; employment history; current debt; any assets and debt to income ratio in order to determine a loan amount. There is no formal letter given to the borrower at that time.

-VS-

Pre-Approval: A potential borrower contacts a lender for approval on a home mortgage. The lender collects personal identifiable information(PII) and pulls the individuals credit history report and verifies their income. At this point, the lender is determining the borrowers credit worthiness. Once the lender has verified this information and determines credit worthiness, the borrower is provided confirmation of the maximum loan amount for home purchase. The borrower can request a pre-approval letter from the lending institution to provide to their Realtor. This may give the buyer an advantage over other buyers whom do not have an approval letter when submitting a contract. As a reminder Buyers must remain cognizant of the expiration date on the pre-approval letter.

Click here for more information on pre-approval or pre-qualification.