Whether you're buying or selling a home here, you need to know the difference between these terms.
They sound so much alike that they're often used interchangeably – but the difference between them is vast.
Pre-qualification doesn't mean much of anything.
To become pre-qualified, a borrower can simply get on the phone with a lender and outline their financial picture. They tell the lender what their current income is, what their current monthly obligations are, how much money they have to put toward a down payment, and how they believe their credit scores stand.
From that conversation, the lender says that he or she thinks they would probably be able to get a loan for X dollars.
Note that none of this has been verified. The numbers used may or may not be accurate, depending upon whether the borrower has taken time to go through their own paperwork and write things down. Even then, unless that borrower has purchased his or her FICO scores within the last few days, the credit assessment may or may not be accurate.
Pre-approval, on the other hand, means something. It indicates that the lender has verified all the pertinent information, including the borrower's current credit report.
From that assessment, the lender has issued a letter saying that if all things remain the same, the borrower will be approved for a mortgage loan for X number of dollars.
If you're a buyer looking for a home, get pre-approved and shop for your home with confidence. If you don't know a good lender, call me. I'll give you a list of lenders who have served my clients well.
If you're a seller – wait for that letter of pre-approval before you take your house off the market for a buyer who has only been prequalified.
When you're looking for a real estate agent who will protect your interests - get in touch!