April 2, 2008

Pre-Approval letter vs. Pre-Qualification letter

Pre-Qualification letter vs. Pre-Approval letter

There is a HUGE difference between a Pre-Qualification letter and a Pre-Approval letter.
By Dianne Christian, Broker
A Pre-Qualification letter can be issued after a five-minute conversation with a Lender. All it says is that X Buyer is qualified to buy a home for XX dollars PROVIDING the information the Buyer has given to the Lender is accurate. It's not worth the paper it's written on because nothing has been verified. The Lender was simply crunching numbers based upon the Buyer's stated income, stated debt and their credit score (which may or may not have been pulled). The Lender is saying this is a price they "can" afford provided they are telling the truth and everything pans out upon further investigation.

A Pre-Approval letter, on the other hand, is more. The Lender is stating that X Buyer is PRE-APPROVED for a loan in the amount of X dollars towards a purchase price of X dollars and that the Lender has already seen their bank statements, IRS returns, paycheck stubs and verified their income, debt and credit report. What remains to finish up the loan would then be the things that are attached to a specific home: the home appraisal, title search, etc. The Buyer's portion has already been done. Around here, in order to get a Pre-Approval letter the Buyer has already made application to the Lender and paid the application fee of about $350 so the Lender can begin the process.

Listing Agents are generally unimpressed when a Buyer provides a Pre-Qual letter. I've often had Buyer's Agents TELL me they have a Pre-Approval letter and then it ended up being a Pre-Qual letter. I send it back and explain the difference. A Pre-Qual letter is worthless, but a Pre-Approval letter shows the Buyer is serious and can afford to buy the house.

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