Pre-Qualified and Pre-Approval are two common terms you hear when it comes to getting a mortgage, but it’s important to know – they are very different things. Here are some of the key differences between Pre-Qualified and Pre-Approval. Knowing the details about these terms will help you better understand the mortgage process moving forward.
A Pre-Qualification takes about 15 to 30 minutes to complete, and involves only a few simple questions.
You typically complete this form before looking for a home.
At this point, the home financier takes your word that everything you state is correct and will verify it at a later date.
A credit check is run, then all the information provided is put through an automated underwriting system, which will provide a preliminary status.
At the end of the process you’ll have an idea of how much financing you can receive, and often you will be issued a Pre-Qualification letter that states that a credit check has been run and based on the information provided but not yet verified, you qualified for a specific dollar amount.
A Pre-Approval letter is much more involved.
A Pre-Approval letter means that, with your authorization, we have reviewed your credit history obtained from a credit reporting agency. You do not have to file an application to obtain a Pre-Approval. Although you have not submitted an application, a Pre-Approval letter results from a more in-depth look at your financial information and will tell you the most you can afford to spend. It’s not a guarantee that you’ll be approved when you actually apply, but it is a useful aid as you start shopping for a home.
Real estate agents will often ask for Pre-Approval letters in the same amount of an offer they intend to submit on a property. Because sellers will be less likely to negotiate downward or offer concessions if they know that a buyer can afford much more than they are asking for a property,
For a Conditional Approval, on the other hand, a review is done once you file an application. It is a confirmation that you meet the financiers requirements based on information received in the application and credit reports a well as a verification of your income. Once you are Conditionally Approved, you may be offered a financing commitment once all information in your application is verified, all underwriting requirements are satisfied and acceptable property related reports are provided and approved. You will discover later in the home buying journey, that having Conditional Approval can put you at an advantage over other homebuyers. Home sellers are more likely to take homebuyers with Conditional Approval more seriously and prioritize their offers before homebuyers who do not have Conditional Approval.