Pre-Qualification vs Pre-Approval vs Same as Cash Approval
Pre-qualification and Pre-approval sound similar but they are very different. Many lenders will interchange the verbiage.
What is the difference?
Here’s the truth, lenders will interchange what they consider you being pre-qualified and pre-approved. A Pre-qualification is a very basic look into your buying power. It means the lender did not look at any financial statements, did not pull credit and essentially went off what you told them. Think of this in layers. pre-qualification is the lowest level
On the next level up, you want a Pre-Approval. Which is whats necessary to put an offer in on a house you like. This means the lender has verified your income, assets and credit by having you send them, as well as pulling your credit to verify you have the scores to qualify. However lenders like myself take this a step further and look into what we call “Automated Underwriting”. This is a system designed by Fannie Mae and Freddie Mac, that we can check to make sure you can get an approval from the automated system. This makes sellers feel comfortable that you are a qualified buyer and will put these types of approvals at the top of their list.
Same as Cash Approval (Fully Underwritten Loan Approval)
The 3rd level is the highest form of Approval. This takes everything that we have done with the Pre-Approval and added on top. By submitting your file to our In House Underwriters. They will go through it and give us a formal approval with a list of final conditions. This way we can start clearing those conditions before you even have a contract on a home. These types of approvals are considered same as cash offers since they offer a guarantee that we have already cleared any issues an Underwriter may have. Underwriting is the main place where a loan can fall apart or be denied. This removes all doubt. On top of the added benefit of being able to close within 2 weeks, sometimes less.
What is the conversation like to get Pre-Approved?
The conversation is very easy. I want to get to know you and your goals for homeownership. We talk about down payment options, your income and job, and how much you are looking to spend on a mortgage. Then with that info we start forming a game plan of price range for you and expected costs that you’ll incur during the process.
| Pre-qualification | Pre-approval | Same as Cash Approval |
| May include a credit check. | Includes a credit check. | Includes a credit check. |
| Requires an estimate but no proof of your credit, debt, income and assets. | Requires documentation of your financials and verification of employment. | Requires documencation of your financial and verification of employment. |
| Estimates how much you can borrow to buy a home. | Provides a preliminary mortgage offer, but not a guarantee of full loan approval. | Provides a full Approval from an Underwriter on a TBD Address. |
| Won’t convince real estate agents and sellers you’re a serious buyer. | Gives real estate agents and sellers confidence in your ability to get a mortgage. | This Approval competes with cash offers and can close within 2 weeks. |
| Can take as little as a few minutes to provide information. | May take 30 minutes or more to fill out the application. | This may take a few days to complete, this is a step apove a Pre-Approval. |
| Can get an answer in a few minutes. | Only takes 1 hour after docs are submitted. |
This may take a few days. |
Why should I get pre-qualified vs pre-approved?
Getting pre-qualified for a mortgage can be a good starting point if you’re a first-time home buyer or if you’re in the very early stages of considering a home purchase. Most pre-qualifications don’t require a hard credit inquiry, so your credit score won’t take a hit if you decide to press pause on buying. And when you decide to move forward with a pre-approval, you’ll already have a good idea of which lender you’ll want to work with.
Either way, if you choose to get pre-qualified vs pre-approved or vice versa, you’ll still need to have an offer accepted, a loan application completed and a purchase contract in place before your lender can fully underwrite and approve your loan.
Which is better pre-approval or pre-qualification?
A pre-approval letter typically carries more weight than a pre-qualification, since the pre-approval is a conditional commitment from a lender to approve your loan. If you’re uncertain which is the best option for you, your moving timeline can be a good indicator of whether you should choose a pre-approval or pre-qualification. If you’re fully committed to buying a home, starting the pre-approval process first might be the right option for you. If you’re curious about whether or not you qualify for a loan and how much you may be eligible to borrow, mortgage pre-qualification will provide you with helpful information you can use to find a home within your budget.
Do I have to use all the money I’m pre-approved to borrow?
You don’t have to search for homes at your maximum pre-approved amount, but it is a good idea to search for homes that don’t exceed that budget. Take into account your own monthly spending habits and priorities when deciding how much of your pre-approved amount to borrow. This is something we go over on the initial phone call. I want to make sure you are comfortable with what you are buying.
Do I need a pre-qualification letter to look at houses or work with an agent?
You don’t need to be pre-qualified to start looking at houses, but many real estate agents like to see at least a pre-qualification letter before committing a lot of time and effort to showing you homes. Also, getting pre-qualified can help solidify your budget and prevent you from touring properties that may end up being above your price range.
Do I need a pre-approval letter to make an offer?
Technically no you do not. However many sellers will not accept an offer if there is no Pre-approval attached to it. This helps you stay competitive in the house hunting market to ensure you the best chance of having your offer accepted.
Loan Options
Resources