Mortgage Pre-Qualified VS Pre- Approved

You may often here many Real Estate professionals using pre-qualified and pre-approved interchangeably. The problem is that they both have two completely different meanings. If you are using the words interchangeably you may find yourself in a sticky situation.

The term Pre-Qualified is basically the lenders “guestamite” of what you can afford. You may receive a pre-qualified letter from your mortgage consultant. Unfortunately this does not mean that you will be approved for that loan. A Pre-Qualification is a preliminary idea of what the lender thinks you may be able to afford. Pre-Qualifications are typically done by having a short conversation with your lender regarding your financial state and the lender looking at your credit score. The lender will try to calculate your debt to income ratio and apply this with your credit score to get a pre-qualified amount.

The term Pre- Approved is used when the lender has not only taken the initial steps of pre-qualification but has taken the steps to have your loan underwriting stage to make sure that your loan is approved. The underwriting stage includes gathering all of your w-2, pay stubs and tax returns to verify your income. Your employment is verified and bank statements are obtained to verify that you have the money to close on the property that you have reserves. Your credit score is carefully reviewed and loan history is established. Once the loan is underwritten the lender is able to give you a Pre-Approval letter based on the credit worthiness of the buyer.

The Pre-Approval stage takes more time but will ensure you that you are able to obtain a loan for the amount in the Pre-Approval letter. Having this Pre-Approval letter has many benefits as not only you but the seller will know that you have the financial means to purchase a home when placing an offer on it.