Pre-Qualifying vs. Pre-Approval

Great post Amanda!

Nice. May I please share?

Pre-qualify doesn't really mean anything, because it's based only on what the buyer tells the lender. And unfortunately, some buyers forget to mention things like child support payments, past due bills, etc.

this is what I refer to as a 'distinction with a difference". Many people inter-change these terms but as you suggest, they are not the same thing!!

When I meet with a potential buyer who has not contacted a lender, I tell them not to hold back on any money coming in and any going out (i.e. child support, garnishment of wages for student loans, credit union loans deducted from paychecks, etc.). Along with a few other things I've noted from working with lenders in the past and current.  I tell them ,and granted I'm not a lender, but atleast they have an idea. I send them to a lender of their choice from a very shortlist I give them or their own choice. This has worked out very well. Lenders I've worked with have said it cuts to the chase. It doesn't necessarily get them approved but helps them overcome obstacles that need to be eliminated and get them to their goal. Buying that home.

For "quickies", I get a Pre-Qual letter, but also speak to the Lender to make sure that the person is "strong". When we have more time, a Pre-Approval Letter is obtained.

I advise all sellers not to accept offers unless the buyer has been pre-approved. If paying cash, they must be able to verify this in writing as well. When I work with a buyer I will not submit offers unless buyers have gone thru the pre-approval process as well. This has served me, my sellers and buyers well over the years and my sales do not fall thru because there are no surprises along the way. Happy New Year Everyone! 🌴

I'll agree with Nancy, #15 all the way. 

When I'm the listing agent I look at the verbiage in the letter. Some companies will title their letter as a pre approval or even a letter of commitment which is unheard of these days. 

Look for the part that says that the credit and employment was verified,  or the lack of it. If the letter says that the buyer is prequalified based on information provided by the buyer, call the lender and clear this up. They may not have verified anything yet or they may have and the letter may be computer generated.  Some softwares don't upgrade the letter until the address or other information is filled in and the loan officer may not have the authority to make changes to the letter. 

When I'm the listing agent I look at the verbiage in the letter. Some companies will title their letter as a pre approval or even a letter of commitment which is unheard of these days. 

Look for the part that says that the credit and employment was verified,  or the lack of it. If the letter says that the buyer is prequalified based on information provided by the buyer, call the lender and clear this up. They may not have verified anything yet or they may have and the letter may be computer generated.  Some softwares don't upgrade the letter until the address or other information is filled in and the loan officer may not have the authority to make changes to the letter. 

I just explained this to my brother who is buying a house in Texas but I am forwarding your blog to him because it is much more concise.  Thanks for a great post.

These very different steps are very often misunderstood by buyers.  Sellers seem to always understand but that is likely because their agent makes sure.

I will never accept a pre-qual- it must be a full blown pre-approval with credit pulled and some docs submitted!  You should change this so the public can see it- it may bring you some clients. 

Ps- Welcome to ActiveRain!

Great article and very well explained.  Thanks for sharing.

Great Post, as most people don't know the difference, some are even agents!

 

Hello Amanda.  Very well presented explanation of the difference between Pre-qual and Pre-approval.  I spent 25 years as a loan officer, and learned early on to combine both functions into one interview.  I did a pre-qual [I always abbreviated PQ], but had instructed applicant to bring documents necessary to attain a pre-approval.  I did not spend time differentiating the two with the applicant, because I was in full "approval" mode from the beginning.

 

My first phone call was to the selling agent with a "GO/NO GO" message: "Go find them a house!" or "They need some time and work BEFORE YOU PUT THEM IN YOUR CAR."  My second task was to prep the file for processing, then give it to my processor."  We set a mutually agreed upon TARGET DATE as to when it would be in the underwriter's hands.  Great processors make great loan officers!

 

Go get 'em!  Let it Rain!!!

 

 

Most sellers will not consider an offer without a pre-approval and most Realtors will not work with a buyer without a pre-approval.

Getting a pre-approval is SOO much more valuable than a pre-qualification, I suggest every buyer get this prior to making an offer on a home if possible!

Amanda and David, Well Explained… Thanks for Sharing! Also, Welcome to the Rain! Active Rain is a great place to share your knowledge, expertise and thoughts, as well as network and learn so much from the vast pool of talent already onboard. I look forward to reading your upcoming posts. If you would like to connect with me on ActiveRain, please subscribe to my blog! Welcome Aboard & Much Success!