What’s the difference between a prequalification and pre-approval?

So what’s the difference between a prequalification and pre-approval? When applying for a new home loan, knowing the difference between these two terms will save you time, headaches and help your realtor determine if you’re ready to look at houses. A prequalification is an unofficial estimate of how much house you can afford. A loan officer will make an educated guess about your ability to buy a home based on your verbal or written submissions of income, finances, and credit history. Lenders will not generally pull your credit report during this evaluation. They will calculate your debt-to-income ratio and write you a letter of prequalification stating how much you should be able to borrow. This process is usually free, but it does not give you any real credibility with lenders or making an offer on your new home. The prequalification is based on vague figures and does not take into account all your financial factors. Future home owners fall into this category if they are just wanting to gather information about projected payments, costs, possibility of approval, it holds no weight for the lender to actually issue a real “pre-approval letter”. The main benefit of prequalification is getting a general idea of how much you can afford. Pre-approval on the other hand is what your realtor wants to have in hand before showing you houses and making offers. The approval consists of the lender reviewing documents such as tax returns, bank statements, and business financials for self-employed borrowers. Lenders will analyze these and other information gained by reviewing employment history, and reviewing your credit report. After an evaluation of this information the lender is able to then produce a pre-approval letter that certifies that you have the resources, capital, and income to afford to buy a home for a certain amount. Sellers will 100% require an approval letter from buyers who are pre-approved because they have proof that the buyers have financial backing and are prepared to pay the required amount. In a hot market like The Woodlands, Conroe, and Woodforest, most sellers won’t even consider offers from buyers without pre-approval letters. A pre-approval does not guarantee loan approval or funding. It simply means that the lender has reviewed the information and to the best of their professional knowledge and information provided the likelihood of approval is likely. Any information the borrower fails to communicate or the lender isn’t made aware of can alter the pre-approval during the underwriting process. Call Steve Head “Mortgage Expert” with Texas Premier Mortgage to discuss your questions and application at 281-907-6401 x100, steve@txpremiermortgage.com