Buying a Home in Salt Lake City, UT

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Pre-Qualification? Pre-Approval? What's the difference?

Pre-Qualification vs. Pre-Approval

Pre-Qualification is NOT the same as Pre-Approval.

Pre-qualification for a mortgage loan is simply a mathematical look at the buyer's stated income and debts that produces a maximum home price the buyer could afford. There is no checking of credit and no verification of any of the information provided by the buyer.

A loan pre-approval won't be provided from a lender until a buyer's credit has been run, the buyer has been evaluated for credit risk, their financials have been looked at more closely, and the lender is confident that everything should go through with the buyer's loan provided normal follow-up conditions are met (such as income verification, property appraisal, etc.). For these reasons, a pre-qualification is much weaker than a pre-approval. It does not add much, if any, strength to a buyer's offer.

Because many sellers have been burned by buyers who are simply "pre-qualified", whose loans are later denied, more and more sellers are asking that pre-approval letters be sent with a buyer's offer. (And some sellers will not even show their homes to buyers who are not pre-approved for financing.)


Buyers should get Pre-APPROVED before writing an offer on a home.

There are many benefits to getting a pre-approval letter before even looking at homes. Certainly at the point of writing an offer, having a pre-approval letter in-hand is ideal. 

  • Getting pre-approved for a home loan helps a buyer know in advance how much home they can purchase.
  • A pre-approval builds confidence (to both buyer and seller) that the loan will go through.
  • A pre-approval makes your offer much stronger and more attractive to sellers and their agents.
  • In a multiple-offer situation, the difference between submitting an offer with a pre-approval letter vs. a pre-qualification letter (or no letter) could determine whether or not the buyer gets the home.
  • A seller may accept a lower offer from a pre-approved buyer. (Especially if a previous offer from a pre-qualified buyer failed.)
  • Perhaps the most important reason for getting pre-approved for a loan is that the pre-approval adds credibility and strength to the buyer's offer and puts the buyer in a stronger position to negotiate more aggressively.

 Remember: Pre-Approved, not Pre-Qualified.

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Comment balloon 3 commentsBenjamin Clark • September 20 2013 01:29PM

Comments

Benjamin - Thank you for sharing an excellent blog about the difference between pre-qualification and pre-approval.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) almost 5 years ago

Thanks for visiting John.

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) almost 5 years ago

It drives me crazy when people interchange these terms as if they are the same thing. Thanks for spelling out so clearly. 

Posted by Dana Hollish Hill, Lead Associate Broker (Hollish Hill Group, Keller William Capital Properties) almost 5 years ago

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