How is pre-approval different from pre-qualification? What are the
advantages of each and which option would be the best for you?
4.1 Pre-Qualification. This is an assessment by the
lender, based on certain basic information given by the borrower
(e.g. employment, income, asset information, current monthly debt,
and credit worthiness). Based on this quick evaluation the lender
makes a tentative decision to pre-qualify the borrower for a certain
loan amount. This does not commit the lender to a loan, rather it is
only an opinion of the lender, non binding and only a first step.
4.2 Pre-Approval. Like a pre-qualification, a
pre-approval involves a lender making an assessment of a borrower's
buying capacity based on her or his income. But unlike a
pre-qualification, a pre-approval letter also checks the applicant's
credit and is a surer verification of a borrower's income. It takes
longer to process and will require more comprehensive documentation,
but gives a clearer and more definitive guarantee of the loan amount
a borrower is entitled to. Generally a pre-approval is
considered a commitment to make the loan.
4.3 Why Choose Pre-Approval? It's advisable to go
straight to a pre-approval for several reasons. A pre-approval can
strengthen your purchasing power as a far more accurate evaluation
of how much house or real estate you are capable of buying. The
pre-approval will be more appealing and thus perform better than a
pre-qualification in a competitive sellers market. It's also more
time-effective since it reduces the time your lender will need to
process and fund your loan.