In real estate, you will often hear the terms pre-approval and pre-qualification interchangeably.
The truth is that the two terms are very different and as a buyer, you don’t want to make the mistake and believing you are pre-approved when really you are only pre-qualified. It’s simple, but it’s easy to make the mistake. Let’s talk about the two.
What is Pre-Qualification?
Essentially, the objective of a pre-qualification is to figure out how much money one MAY be able to borrow. Typically, when obtaining pre-qualification, clients provide basic financial information to the lender. The lender can then, make an estimate of how much the borrower can afford. This does not approve the borrower for a loan.
What is Pre-Approval?
Pre-Approval is your bread and butter. It’s similar to a pre-qual, however; this process is more formal and in depth, as the lender will require verified information, pull credit reports, tax returns, bank statements, W-2’s, pay stubs and more. I know it sounds like a strenuous process but trust me, you will be relieved when get this part of the process completed early on. Once the pre-approval is completed, you will receive a letter with a dollar amount of what you qualify for based on the information provided.
The benefits here are that:
A. You are already pre-approved which is the same as cash to ready sellers.
B. You’ll beat out the unprepared buyers.
C. You’ll know exactly what properties you can afford ad shop for.
Ultimately, the main difference between a pre-qualification and a pre-approval is that the pre-qualification guarantees you nothing and is simply gives an estimate of what you may be able to borrow. A pre-approval will prepare you for purchase. Moral of the story is GET PRE-APPROVED.
By the way, I must disclose that I am in no way a legal or financial representative of any form. The information provided is not to be taken as legal or financial advice. Please seek professional advice if you are looking to secure a loan. Type you guys next time!
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