Pre-Qualified is the first step in the loan process and is a fairly simple exercise. A Buyer will provide a bank or loan originator with an overall financial picture, as the Buyer sees it, and based on that information, a lender can provide the buyer with a good idea of what they can afford and qualify for —assuming that all of the information is correct. Generally no credit check is done and the process can be done over the phone or via the internet.
Pre-Approved is the next step in the process and where many who thought pre-qualified was a good as rubber stamped, fall down. At this step in the process, the lender will ask for detailed financial records (e.g. bank statements, pay-stubs, tax forms etc) and pull a buyers credit report. This stage is where the lender can provide an accurate assessment of where a buyer stands and provide them with a pre-approval letter which lets Sellers know that a Buyer is approved for up to a certain loan amount. The approval of course is contingent on the home appraising for at least the purchase price and in the case of FHA/VA loans, certain inspection criteria. Pre-Approved means that a Buyer can move quicly if they find a home that they are interested in.
From a Sellers standpoint, when you receive an offer and review it with your agent, a Pre-Approved letter is far better than a Pre-Qualified letter. If you accept an offer with just a Pre-Qualifed letter, the Buyer will now need to go through the process of getting Pre-Approved and then begin the inspection process. This is valuable time that your home could still be marketed and seen by other qualified buyers because there is no guarantee that the Buyer will pass the Pre-Approved stage of their loan.
Pre-Qualified and Pre-Approved are not the same thing. Make sure you understand the difference between the two because assuming your loan is a done deal since you were pre-qualifed could cost you the home of your dreams.
If you’d like more information, or recommendations for which lenders to talk to, feel free to reach out!