These words sound similar, but in the mortgage industry, they mean two different things.
A pre-qualification letter and a pre-approval letter are similar in the fact that both are available at no cost to the borrower and will provide a letter noting the maximum amount of money the bank is willing to lend the borrower based on certain financial assumptions provided to the lender. Neither letter represents a guaranteed loan offer, which means buyers can receive pre-qualification and/or pre-approval letters from multiple lenders at once. That is where the similarities end.
Pre-qualification can usually be handled over the phone in a matter of minutes. All information provided to the lender regarding income, assets, and down payment are provided verbally with no written documentation required. However, many lenders will pull credit before issuing a pre-qualification letter. Since income and assets are not verified, a pre-qualification letter is a less reliable indicator that a borrower may qualify for a loan. If your client is a W-2 employee with good credit, then a pre-qualification may be sufficient to begin shopping for a home.
The pre-approval process requires a full mortgage application to be completed and submitted, accompanied by income and asset documentation. An underwriter will review the loan to provide conditional approval. This process takes a little longer but if the borrower is self-employed, has a few dings on their credit report, or is using a down payment assistance bond program, it may be prudent that they take this route. With a pre-approval, once the borrower has found their home, the mortgage process is faster since they have already completed many of the initial steps of the loan process. During situations where there are multiple offers on one home, having a pre-approval letter is a significant advantage for the borrower. Borrowers with a pre-approval letter may appear to be a stronger potential buyer to the seller compared to those with a pre-qualification letter.
Helping you understand the difference between pre-qualification and pre-approval is a great first step in ensuring a smooth process during your homebuying and home financing journey. Premier Homes By Angela is hear to assist thorugh this process and look forward to hearing from you to create and discuss a strategy to get you and your family into a home.
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