San Carlos Real Estate Agent, San Carlos Realtor Pre-qualification vs. Pre-approval…What’s the difference? | The White Oaks Blog
San Carlos Real Estate January 7, 2009

Pre-qualification vs. Pre-approval…What’s the difference?

by Chuck Gillooley

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This is a question that loan brokers and real estate agents get asked quite often.   I read a number of real estate websites and blogs during the course of a given week, and I find that the two terms are often used interchangeably.  But make no mistake, there is a difference between a pre-qualification and a pre-approval when it comes to borrowing money — and it’s important for you know the difference, regardless of which side of the transaction you are on.

Since I’m not an expert in home finances like a mortgage broker, I asked such an expert to clearly spell out the difference.  Adam O’Donnell is a  Certified Mortgage Planning Specialist with Guarantee Mortgage, and he was kind enough to do just that:

Loan Pre-Qualification:

“Pre-Qualification” simply means you have provided your income, assets, work history, and other basics relative to your personal financial position, and that your mortgage specialist then states that your are qualified based on the information that you have provided.  These tend not to be very accurate since many people round up with income and assets..

Loan Pre-Approval:

“Pre-Approval” means you have completed an application, and submitted your pay stubs, W-2’s, and asset statements, and that your mortgage specialist has verified this information.  He has subsequently received either an automated underwriting decision stating an approval, or that he has submitted your loan to an Underwriter and have received an approval.

As you can see from these definitions, getting a loan pre-approval is much more of an involved process.  Consequently, they carry much more weight than a pre-qual when a contract is about to be executed.   Pre-qual’s are nice to have when you first start shopping for a home, but be prepared for the astute home seller to demand a pre-approval from you before they’re willing to sit down and hammer out a contract.

If you had this same question, I hope we’ve been able to answer it.   Thanks to Adam for his contribution to this post — feel free to contact him directly by clicking the link on his name above.
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Pre-qualification vs. Pre-approval...What's the difference?, 5.0 out of 5 based on 2 ratings
Comments 5
  • When I purchased my first home, I found out the difference as soon as I went in to make my first offer. Bank of America actually charged me $325 for the “pre-qualification” letter. When my agent saw what I had, she immediately told me that I had to be approved or she could not submit the offer. She scrambled to get me approved at the last minute, but there was not enough time and she submitted the offer as-is; I lost out for that reason, even though I had made the highest offer. Bank of America refused to refund my fee.

    In my opinion, pre-qualification means nothing when it comes to purchasing a home. You AND your offer have no credibility until you have been approved.

    I think pre-qualification should be thrown out the window. It is misleading to novice home buyers and could lead to losing out on your dream home if there is no time to get approved in advance of an offer.

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  • Michael,

    I think your opinion on pre-qualification is probably shared by many in the mortgage industry. The days of stated-income loans are gone, or will be very soon. Sellers are just as nervous as buyers right now, and they’re going to demand to see something with more teeth than a pre-qual letter. And on top of all that, to have the bank charge you for it…ouch.

    Thanks for sharing your experience.

    Chuck

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  • I’m going through the same thing right now. I did not realize there was a difference between preapproval and prequalification, until I went to submit an offer today. I’m quite steamed that even though I asked Bank of America for a preapproval, and they called it a preapproval, my realtor was the one to inform me that I was actually only prequalified. Now I am under a lot of pressure and stress to get preapproved in one day. As if being a first time home buyer is not stressful enough.

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  • Irene,

    That is very disappointing, and a little bit surprising that B of A would drop the ball that way. They know the difference between pre-approval and pre-qualification. Hopefully they’ll be able to turn it around and save your offer. The key word you want to hear from your lender is “underwriting.” As in, “your loan app has been underwritten.” That’s the key difference between the pre-qual and pre-approval.

    Good luck on your offer!

    Chuck

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  • Chuck, very good summary of the difference between a prequal and pre-approval. In a multiple bid situation and very competitive market where I live (Temecula, CA), I’ve found it helps my buyers to submit a conditional loan approval (highest level of approval) with their offer….I call this the Preferred Buyer Advantage.

    You have an awesome blog and provide great info and transparency to the buyers in your market….well done. I’ll be following your blog via RSS.

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