Pre-Qualification vs Pre-approval

By
Mortgage and Lending with Henry J Daniels (936) 228-1944 NMLS #209419

In today's market there is a lot, and I mean A LOT of miscommuncation out ther as to what the difference between a pre-qualification letter vs a pre-approval letter.  Sadly the terms are used interchangably and their meaning has, as a result, lead to much confusion in the marketplace.

The first Pre-qualification is an informal agreement between a broker and lender or bank regarding a borrower. The lender gives their opinion on how much they think they will be able to lend to the borrower based on information that the borrower have provided to them in the application and was discovered in the credit report.

The lender doesn’t do any background checks at this point. It relies solely on the borrower portraying an accurate picture of their circumstances. This is more like a friendly handshake, the lender can decide not to give you the loan if they find out later that the borrower has been less than candid with them. There is no charge to do this and borrower is under no obligation to get a mortgage with this lender.  A pre-qualification does NOT require a sales contract and in many cases be done in under a day... and at Equity Mortgage, minutes.

The second, Pre-approval is more serious. The underwriter of lender or bank will actually check the employment information, assets, liabilities of the borrower and the sales contract and terms.  If you’re concerned that a purchasing client might not qualify for a mortgage, we highly recommend that you go for pre-approval. It will put all parties at ease while the borrower can still search for another property if so desired.  This makes the entire experience much less worrisome for all parties. The pre-approval requires a monetary and signatory commitment on the part of the borrower. The borrower must sign a borrower’s authorization and pay any required application or credit fees that may be required at this time.  In addition there must be consideration given to the seller in the form of escrowed earnest money to have a valid contract.  A true pre-approval is issued w/in days due to the added complexity and the personal review by an underwriter.

At this time if issues that would prevent a sucessful loan funding should be dealt with if they are noted by the underwriter since if they are not there is a distinct possiblity that the loan will not close or fund and then everyone has a bad day.  At Equity Mortgage we are your trusted advisor in this capacity for this and all real estate loans from commercial to residential.  If you are a realtor or a borrower feel free to contact my office for the type of approval you need.  The key to a smooth transaction is to come prepared to the barganing table.

For additional information feel free to contact me directly @ (832) 519-0695) or email me @ henry@GoToEquityMortgage.com

Posted by

Henry J Daniels, Senior National Mortgage Banker for Goldwater Bank N.A.  he specializes in educating clients on the new realities of today's mortgage lending market and providing solutions to all of your home financing needs.  


If you need Custom Home Construction, Rehab, FHA, VA, USDA, Conventional, Jumbo or Construction mortgage Nationwide he can help you understand all of the options available and provide you with true financing choices.  


You may contact him at (936) 228-1944


  Copyright © 2007-2018 Henry J Daniels

The views expressed are mine alone and do not necessarily reflect the views of any company I may work for.

Comments (4)

Chris Cox
Coldwell Banker United, Realtors - Tyler, TX

A very good point made. Thaks for the post.

Jul 01, 2008 03:29 PM
Karen Monsour
Coldwell Banker Fort Lauderdale Beach - Fort Lauderdale, FL
REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert!

Thanks for the information. I knew most of this, but there was some additional good info for me as a RE agent!  Thank you!

Jul 01, 2008 03:29 PM
Linda Lipscomb
Linda Lipscomb RE/MAX Lexington Henderson County TN - Lexington, TN
731-695-1118, Lexington TN Homes

Thanks for the clarification.

Good post.

Jul 01, 2008 03:45 PM
Peter Nikic
Broad & Bailey Realty LLC - Valhalla, NY

Henry, thanks for the explanation. I had a problem a couple of months ago with a deal because the terminology was being misused. luckily everything went well, but not without a little unnecessary frustration.

Jul 02, 2008 12:23 AM