Am I Pre-Approved or Pre-Qualified?
at 11:20 pm on Monday, 9 July 2007
I have been a loan originator in the mortgage industry for several years now and one of the most FAQ’s I get is: “What is the difference between pre-qualification and pre-approval?” The two terms are often used interchangeably but actually have different meanings.
A pre-qualification is an estimate of how much home you can afford based on your monthly income and expenses. In most cases, you give this information to a mortgage lender over the phone. This is the first step to completing a loan application, but does not mean you are approved for a mortgage. The terminology is definitely a little tricky.
In order get a pre-approval, the lender pulls a copy of your credit report and verifies the information you have given them. Typically a lender will call your employer to verify your employment, request a copy of your W-2 and pay stubs (or tax returns if you are self-employed) to verify income, and a copy of your bank statement to verify assets.
It is important to get a pre-approval before you begin the hunt for your dream home for two reasons:
- It gives you peace of mind knowing you can afford the home you are in love with, and
- It ensures the seller that you are qualified to by their home, which will give you more bargaining power when negotiating the sales price.
Janet Wickell posted this article which goes into more detail on the topic. Good luck and happy home hunting.