Pre-Qualified Vs. Pre-Approved - What's The Difference?

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A common question we get asked is, "What's the difference between a pre-approval and a pre-qualification." Today, you'll learn what separates the two and why one is much more valuable than the other.

A pre-qualification is when the lender pulls your credit and income to see what your general financial picture is like. There is no verification whatsoever, and a lot of the bigger banks will take this simple step to get you pre-qualified. If you're a seller and someone gives you an offer that is pre-qualified, we suggest you run far away from that offer! 

Why?

With a pre-qualification, nothing has been verified. Tax returns, pay stubs, and debt ratio are not verified during the pre-qualification process and the odds of closing on time, or at all, with a pre-qualified buyer are slim. 

A pre-approval, on the other hand, is when a lender takes the time to look at your entire financial picture. Tax returns, W-2s, paid taxes, income, and debt are all examined and verified. If you receive an offer from a pre-approved buyer, we would suggest you take it very serious and even open negotiations. A pre-approval is a stamp of approval from the bank that a buyer can afford what they say they can. 

People often ask us whether they can negotiate the price of a loan. Big banks such as Wells Fargo or Bank of America have set guidelines for what they charge. With these banks, everything is negotiable. However, local lenders have more options - they can shop around for the best rate, terms, and conditions for your particular situation. 

We personally use American Security Mortgage to help our clients. Our preferred lender will get all of your documents up front so you look like a cash buyer by the time you submit an offer. All you will need is an appraisal once you make an offer, as everything else the seller needs to see will have already been collected. When it comes to finding the right loan package, all your have to do is let our lender know what works for you so your money goes as far as it can when buying your next home! 

If you have any questions about these topics, or would like us to answer a real estate question of yours in a future video, give us a call or shoot us an email. We would love to address your comments and concerns!