Pre-Qualification vs. Pre-Approval: What’s the Difference?

This year will prove to be challenging to buyers, sellers, and real estate professionals who have not learned anything from last year™s sluggish housing market.   I am surprised to hear how many deals fall apart prior to closing but not surprised as to the reason why.   Sellers desperate for a transaction are being duped into a sales contract by unprepared buyers who never demonstrate the ability to afford the property in negotiation.   Being presented with a worthless pre-qualification letter is not much better.   A pre-approval letter from a mortgage bank demonstrates a ready, willing and able buyer.  

It™s all very simple.   To know exactly what you can comfortably afford with the least amount of stress to the parties involved, get a pre-approval letter.    It is the strongest statement a buyer can make to a seller about the ability to buy.   For negotiation purposes, anything else is less.  

Some will argue, œI have been pre-qualified!   A pre-qualification is the first step in the process of determining affordability.   A prospective borrower will verbally give information to a banker as to their income, credit, and liquid assets on hand.   They will discuss what is affordable in a specific price range which will tell the borrower what the approximate cost of home ownership will be per month.   Aside from analyzing the credit report, all other information is unconfirmed.  

The pre-approval application is the test of ability.   The banker will ask for documents necessary to verify and review all information previously given pertaining to income, assets, and the credit report.   Estimated terms and costs will be considered to build a case which then is taken to an underwriter or an automated underwriting system.   Once eligibility is established, a bank will draft and sign off on a pre-approval letter.   The borrower can now show they are truly ready, willing and able to proceed with a real estate transaction.   This is the strength sellers desperately want to see from a potential buyer, especially in a sluggish market.  

Sellers: demand a pre-approval letter up front from anyone offering to purchase your home.   Why waste your valuable time?   Savvy Realtors ® have known for many years that this is what to expect before ever showing a listed property to a buyer.   Get it in writing and get the facts from a mortgage banker dedicated to conservative lending practices.  

© 2008 Michael S. Amers

Speak Your Mind