Pre-Qualification vs Pre-Approval
When a Buyer provides a pre-approval or pre-qualification letter, do you know the difference?
Pre-Qualification Letter
Prospective Buyers will often present a Seller with a pre-qualification letter to demonstrate their ability to obtain financing. However, most sellers do not realize a pre-qualification letter is NOT the same as a pre-approval.
Receiving a pre-qualification letter simply means that the Buyer told the lender that they have good credit and make a particular salary. If those facts are accurate and there are no other issues, it is possible that the Prospective Buyer may be approved for the loan. However, since lenders do not verify this information, a pre-qualification letter is inherently much less reliable than a pre-approval. It may incorrectly indicate a buyer is qualified for the loan when they are not.
Pre-Approval Letter
Sellers should always request a Prospective Buyer be “pre-approved”. That means that the Buyer’s information HAS been verified through credit reporting agencies, third party information providers, and written documentation has been submitted to the lender. If a Buyer has a pre-approval letter, they have met the basic requirements to qualify for a mortgage in the amount specified. Provided that the Buyer’s financial status and credit report remains substantially the same until the loan closes, they would qualify for the specified loan product.
As your Realtor, we always get a copy of the Buyer’s pre-approval, and we will call the lender to verify the terms of the pre-approval. However, this does NOT mean the buyer is 100% guaranteed to get the loan. Until the lender provides a loan commitment, issues can still arise.
Loan Commitment
The loan commitment is the closest thing to a 100% guarantee for financing that a lender will provide. Before providing a loan commitment, the lender must perform an appraisal, title work, and final underwriting for the property being financed. This process normally takes four to six weeks and does not begin until the Buyer has an accepted contract to purchase the property. As your Realtor we will communicate with the Buyer’s lender to ensure that the loan commitment is on schedule and will be provided at least three days prior to closing or sooner if circumstances require additional time (i.e., moving, purchase of new home, etc).
If you are a prospective buyer looking to get your pre-approval, we have a network of mortgage professionals that can help you get pre-approved today!
