Financing

The Difference Between Pre-Qualification and Pre-Approval

Pre-qualification is the first step in obtaining mortgage financing. A potential borrower
answers a few questions to provide the loan consultant with a quick snapshot of the
borrower’s income, existing debt, accumulated savings and whether or not there is a
co-borrower. Signature(s) allow the loan consultant to run a credit report and begin to
determine what loans are good candidates for this particular client. However, there are
literally thousands of loan programs available. It is important for the loan professional to
know the long-term financial objectives of the prospective homeowner.

Pre-approval is a written documentation that proves the borrower has full support of a
lender. It means the form 1003 Uniform Residential Loan Application has been completed and reviewed by an underwriter. Based on the borrower’s income, debt ratio and savings, the underwriter will provide a dollar amount this borrower is eligible for.

Now the borrower has the convenience of shopping for a home in the price range agreed upon by the lender. Pre-approval allows potential homeowners to shop as cash buyers, and that means negotiating power. Sellers will take an offer from a pre-approved shopper