The Differences Between Pre-Approval Versus Pre-Qualification
By Kertisha Cobb
Believe it or not, there are 2 types of letters that you can receive from a lender. The problem is one letter holds a lot more weight than the other. If you do not know the differences between the two, it could end up being an issue for you in the long run. In this post, you will understand the differences between Pre-Approval and Pre-Qualification. Also, you will see why Pre-Approval is very important.
Let’s start with why Pre-Approval is very important!
The reason why pre-approval is important is because the lender actually “verifies” what you can actually afford through a loan application and documentation. The lender will use documents like W-2’s, filed tax returns, bank statements, credit report that will show your debt, and etc. This pre-approval is the most accurate account that you will receive from a lender stating how much of a house you can truly afford.
A pre-approval letter is the most highly regarded document that will show a seller that you can truly afford to purchase their home. This is also the letter that will be submitted along with any offer that is put in on a home.
Now, a pre-qualification letter is the exact opposite. You will get an “estimate” of how much you can afford based off of what you tell the lender that you can afford. Normally, it is through a simple questionnaire. For example, ” What is your annual income?” , ” What is your total amount of debt?” . You will see it on a lot of websites that claim to get you the best loan possible by the information you provide. For example, Lending Tree. In most cases, you can get a “pre-qualification” letter as well with the estimate of the amount of home that you can afford. But, the letter will state that nothing has been “verified” in regards to your income, credit, debt, and etc. Because of the 2008 crash in the real estate market these letters rarely come about. I still see some from time to time, but I always advise to get your information “verified” so that you can get an accurate account of what you can afford.
*** Side Note: The pre-qualification of many buyers were part of the cause of the crash in 2008. Which in turn caused a lot of foreclosures due to consumers buying homes that they could not truly afford.
Nowadays , sellers will not entertain an offer made with a “Pre-qualification” letter because it is not a true reflection of the buyer being financially capable of purchasing the home.
There you have it…the differences between Pre-Approval and Pre-Qualification. Make sure you ask questions and that you get a full understanding about the loan process. There are actually some lenders that are here to educate you (The Future First Time Home Buyer).