How is pre-approval
different from pre-qualification? What are
the advantages of each and which option
would be the best for you?
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 at all to the applicant, being
only an opinion of the lender.
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.
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, it 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.