What the heck is the difference between a Pre-Qualification and a Pre-Approval?
Let’s talk about financing. There are SO many different options to choose from when it comes to financing a home. If you are currently in the process of buying a house, you are likely all-too familiar with the world of loan officers, mortgages and underwriters (and hopefully your agent has hooked you up with a loan officer who will get the job done for you in a timely, pain-free manner!).
One thing that is consistent regardless of your financing – you will need to show the seller proof when you write the offer that you can either obtain a mortgage or pay cash for a house. I stress to my buyers the importance of speaking with a loan officer before we even get in the car to look at property but I will go into depth on that in another post.
Today I wanted to talk simply about “Pre-Qualification” vs. “Pre-Approval.” Which is better? Does it matter?
The short answer is – yes, it does matter, especially if you are competing against other buyers for that perfect house.
In the simplest terms, a “Pre-Qualification” is a letter that a loan officer can generate for you based on what you TELL them about your credit, income and assets. Yes, what you TELL them. You could tell them that you make $5 million a year and they will base the pre-qualification on that figure. Now, most people who are serious home-buyers will not lie about it in this stage but the truth is – it CAN happen. A Pre-qualification letter can be issued to a buyer who has absolutely no way to qualify for a mortgage because it’s based strictly on what that person has said.
Now, Pre-qualification letters are not BAD and I don’t want to discourage anyone who has one. It is the very first step on the approval process and if you have told your loan officer the truth (which, I know you have!) then this letter is perfectly acceptable. Especially if it’s Saturday and you’ve found the perfect house and need to get the letter quickly to be able to submit an offer.
If you are a serious home buyer and have received a PQ letter from your loan officer, great! Now, while you’re looking for the perfect home, let them turn that into a “Pre-Approval.” To issue you a pre-approval, the loan officer will take it a step further and verify everything you have told them. They will analyze your credit, verify your income with your employer and will require you to send bank statements, tax returns and other proof of assets that will be needed to qualify for the loan and fund your down payment. Once all of that has been verified, you’ll officially have a Pre-Approval which will give you that edge to sellers who may be considering more than just your offer.
As always, if you are considering buying and are in the Smyrna/Cobb County, GA area, please do give us a call. We would love to guide you through this process and we have fantastic loan officers who we partner with to make the mortgage process as seamless as possible!