Mortgage Pre-Approval vs. Pre-Qualification
Because they sound similar, people often think that being pre-qualified
for a home loan is the same thing as being pre-approved
for one. However, being pre-qualified for a home loan is quite different than
being pre-approved for one, and it is important to know the difference and not
confuse the two. Basically, pre-qualifying is the first step in the mortgage
process; pre-approval is the second to last step, right before full approval.
When a potential home buyer is pre-qualified for a home loan, it means that
a lender has given the potential buyer an opinion as to the range of home prices
that should fit his budget. Pre-qualification is usually based on a quick
credit check and conversation with the buyer. Pre-qualification provides
a realistic idea as to what type of home the potential buyer should be looking
at, and, even if the buyer isn’t ready to commit to purchasing a home, helps
the buyer make important financial planning decisions for when he is ready to
commit to the home-purchasing process. Often, real estate agents have potential
buyers seek pre-qualification before taking them out to look at homes.
Pre-approval, on the other hand, means that the potential buyer
has submitted almost all the documents necessary to be granted a home loan.
The lender has checked the potential buyer’s credit and other financial information,
and is reasonably certain that it will extend a loan to the buyer. At this stage,
the buyer knows the maximum amount the lender will give her, and she is in a
stronger bargaining position with the seller because she is a viable buyer who
will be able to close more quickly than a buyer whose loan has not already been
approved.
Beyond pre-approval, a potential buyer can be fully approved. This means that
the lender has already committed to extending a loan to the potential buyer;
it is almost the same as having cash in hand. Full approval is often subject
to receiving a clear title report and appraisal. The title
report and appraisal help to help determine the final loan amount - a lender
won’t loan more than the appraised value of the home, no matter what amount
the buyer has been approved for. This is the strongest position for a potential
buyer to be in because the seller knows that the buyer will be able to complete
the transaction quickly.
For more helpful mortgage tips on pre-approval, pre-qualification, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
