What’s the difference? This is a question we get quite often. In some cases, this is a just a question of semantics as many loan officers will use one term to describe these two completely different loan decisions.
Call it attention to details if you like, but I think there needs to be a clear distinction between being pre-approved and pre-qualified.
Being Pre-Approved for a home loan is what most sellers are looking for when you submit a purchase offer. A Pre-Approval typically means that your loan application, credit scores, credit profile, income & assets have been received by an underwriter.
All of these documents are then reviewed and uploaded into an automated underwriting engine (like Fannie Mae DO/DU) and an underwriting decision is made and documented. You should receive a printed loan approval by a recognized automated underwriting engine for these findings to be valid.
The “Pre” part of the approval process refers to the fact that there is not yet a property related to the underwriting approval. Many times the documentation required for the approval (pay stubs, assets, W2’s) need to be updated by the time you find the right property and have your offer to purchase accepted.
Final approval for financing will be determined once the purchase contract, inspections, appraisal and all conditions required by the lender are received and approved.
A Pre-Qualification sometimes refers to a rough idea from the loan officer or broker based on a verbal interview or preliminary review of a home buyer’s credit, income and assets. Anything less than a Pre-Approval is not usually accepted by the seller of the home.
Many sellers, especially Bank Owned REO homes require a loan approval from a direct lender before accepting an offer to purchase the home. Be sure to have your Real Estate Agent inquire about the terms of the offer as requested by the seller. Following the sellers offer instructions is required to have your offer considered.
Other articles about this topic that might interest you:
- Qualifying for a CalSTRS 80/17 gets a little harder on December 12th, 2009 On December 12th, 2009 Fannie Mae is tightening its underwriting guidelines to make a little bit harder to qualify for...
- Competitive Advantage: 21 Day Escrow Will Appeal to Sellers of Foreclosures Can a 21 day escrow on your purchase offer give you a competitive advantage over other offers? You Betcha! Sellers...
- Buyers Beware: I Suggest You Give Up Your Rights This is a “Multiple Offer Disclosure” that a home buyer received yesterday by way of email. I’m not completely sure...
Chris "Doc" Apodaca
Jeff Brown – BawldGuy
Scott Schang
