What's the Difference Between Being Pre-Qualified and Pre-Approved?
Although the terms pre-qualification and pre-approval are used interchangeably sometime by those in the real estate world, they are two different things. They are similar in that they both help to inform you and a seller of your financial standing, but there are key differences between the two.
A pre-qualification is relatively simple, and a lender can usually provide you with a pre-qualification letter fairly quickly (sometimes within hours, but almost always by the next day). For the prequalification process you sharing your financial information (debt, income, assets, etc.) with a lender and after reviewing that information and usually a soft credit check they will provide you with a pre-qualification letter.
The pre-approval process is more involved, and a pre-approval letter has more weight where a seller is concerned. It shows a seller that you have taken the pre-qualification to the next step and actually submitted a mortgage application and provided them with the documents necessary to conduct a thorough credit history check and review of your financial situation.
The pre-qualification or pre-approval process varies from lender to lender, but should result in a conditional commitment in writing. This letter is not a guaranteed loan offer, but having it in hand can give the seller confidence that you’ll be able to get financing to buy their home.
While it may seem intimidating to some to get pre-qualifed or pre-approved for a mortgage, it’s really not as difficult as you may think. I have two lenders that I work very closely with and have been referring them to my clients for years. I get amazing feedback about them from my clients, so I consider them part of my team even though they are not affiliated with me.
I could tell you some horror stories I have experienced over the years with some lenders, so working with a reputable local lender is very important, in my opinion. Also, avoid applying for a mortgage on-line with a lender based in another state. As a Realtor that list a lot of properties, one thing that I look for when advising my sellers on a home with multiple offers is to consider who the buyer’s lender is. If you would like the contact information of the two lenders I would recommend, let me know and I will be happy to send it to you.
For me, a pre-qualification letter from a reputable local lender is enough for me to start showing you homes. As I mentioned, talking with 2 – 3 lenders is not a bad idea. Once you have a printout of their fees and terms you can compare them (I’m happy to help you with that, if you’d like) and make your decision on who you are going to use and then move forward with the pre-approval process. As a side note, mortgage pre-approvals are typically valid for 60 to 90 days, so it is something that needs to be updated periodically with current information.
Get ready for an exciting process! There’s nothing better than finding your dream home!