Like most industries we have in the mortgage industry our own language. Realtors as well as mortgage professionals like myself throw acronyms around like PUD, LTV and DTI with regularity. A question I get asked often is to describe the difference between a loan pre-qualification and a loan pre-approval.
Believe it or not, there is a big difference between the two and as a potential home buyer it’s important to distinguish the difference. The process of shopping for and buying a home can be lengthy and sometimes exhausting. The process usually starts by defining desired amenities in your search for properties and setting a price range to search within. This is where the pre-qual and pre-approval letter comes into play.
When a lender pre-qualifies a potential buyer, this is normally a quick and informal process where an “interview” will take place, either in person or over the phone. The lender will ask the potential buyer some questions as well as have a discussion about loans and options available to this buyer. The lender is forming an “educated opinion” about this potential buyer about his/her qualifications and/or ability to secure financing.
The pre-approval is where the potential buyer has applied for a loan and has gone through the underwriting process. This is very different from the pre-qual interview in that the applicant would generally provide income and asset documentation as well as allow the lender to check his/her credit profile. This process is more in-depth and requires the lender to analyze the information and render a decision. This decision is generally in the form of an automated credit approval that is considered by industry standards a pre-approval. This is no longer an “opinion
