Difference between Pre-Qualification and
Pre-Approval for a Home Loan

It is important to work out the details of your home loan with your Loan Officer, who can review your situation and tailor a loan program and maximum purchase price at which you, the borrower are comfortable, and which the Loan Officer can obtain approval for on your behalf. Many potential borrowers make the mistake of thinking that they are eligible to get a home loan because they have been prequalified during a quick telephone call while seeking a mortgage quote. This is incorrect as a pre-qualification is just the loan officer’s best judgment that a borrower meets eligibility guidelines. It is not, however, a credit approval from the underwriter, who is the party responsible for making final underwriting eligibility determinations.

Pre-Qualification

Prequalification for a home loan means that you have given some information to the lender’s representative about your credit history, income, employment history, and figures relating to your ongoing debt obligations. On the basis of this information, the loan officer prequalifies you for a home loan within a price range. The loan officer may also give you a written statement, on the basis of this information, about your ability to be prequalified. This information is helpful at a time when you start looking around for a house as it helps the real estate agent know the price range below which you need to find you a home.

Pre-Approved Home Loan

A preapproved home loan is very different from a prequalification. A prequalification is done on the basis of the information that you provide to the loan officer – in many cases verbally, and over the telephone. No party verifies the information provided.

Preapproved home loans are different from prequalification letters, in that the lender requires the borrower to fill out an application, obtain your credit history from a service provider and review your provided documentation to support your credit request.

Lenders then get third party written verification of all of the details of your financial profile and “credit approves” you, the borrower, based on that information. Upon finding a property to purchase, the lender merely updates the file, orders an appraisal, delivers to you a “final approval” and prepares the loan for closing. Keep in mind, your credit report is pulled again right before the loan closes so if your credit or other financial factors deteriorate between the date of the credit approval and the date of the final approval, your ability to purchase may be jeopardized.

If your loan officer does not deliver you a credit approval, then, seek the help of a mortgage lender, mortgage banker or mortgage broker who can. A preapproval ensures you find the right home for your budget, and increases the chance that your offer to purchase a home will be taken seriously compared to other offers that lack an attached underwriting credit approval.

The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

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