Pre-Qualification Vs Pre-Approval
Is a Pre-Qualification letter the same thing as a Pre-Approval letter?
Purchasing a new home can be a daunting task in today’s mortgage lending environment. There are multiple steps along the way and lenders can use terms that can be very confusing. A confusing set of terms are pre-qualification letters and pre-approval letters. To ensure you are best informed, make sure you understand the difference between the two.
A pre-qualification letter can be viewed as a letter that was written after a brief conversation over the phone with a lender. It usually involves a discussion about your monthly income as well as your monthly debts. A lender may also talk about the down payment amount and requested purchase price. With these few basic pieces of information, a lender can determine if you are ‘pre-qualified’ to afford the projected house payment.
A pre-approval letter, on the other hand, is much more detailed. To issue a pre-approval letter, a lender will require you to submit proof of income as well as any assets that are to be used for down payment. The lender will also require a review of your credit report. And lastly, the lender will have your loan request reviewed (underwritten) by either an automated underwriting system or an actual underwriter. Although this may seem like a more cumbersome way to attain a level of approval, it will certainly eliminate most surprises down the road.