What is the difference between a prequalification and a pre-approval?
Wednesday, June 10th, 2009
Prequalification vs. pre-approval
Part of the loan approval process for mortgage loans involve demonstrating to the seller that you can secure financing in the event that your proposed bid to purchase the home is accepted. Lenders offer two options for this, pre-qualification and pre-approval. While pre-qualification and pre-approvals are both useful, one is definitely superior to the other.
A pre-qualification is relatively easy to get. Most lenders will hand over a pre-qualification letter based solely on information the applicant gives, but without ever verifying any of the information.
Basically, a pre-qualification letter tells the seller that the lender would probably approve a loan for the applicant based on the information the applicant has supplied, but the information has not been verified at all and an application has not been approved.
On the other hand, a pre-approval letter is given only after an application has been submitted and tentatively approved pending approval of the home. This letter tells the seller that the lender has already approved the applicant and the funds will be available if the home appraises as it should.
It is far preferable to get a pre-approval letter before you even pick a home to buy because this can be the leg-up you need on the competition when putting in a bid to buy a home.
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