So, let’s set the record straight about the two different scenarios.
Pre-Qualification: Pre-Qualification for a loan means that the borrower might have completed an interview of a 1003 application form with a lender. The lender or a Mortage Broker could have then performed an debt-income analysis for this borrower to determine how much loan they can be qualified for.
Pre-Approval: Pre-Approval for a loan means that the borrower has completed a full loan application and the lender has completed the following:
- Completed 1003 Loan Application
- Employment Verification
- Asset verification
- Income Verification
- Down Payment Verification
- Submitted to Loan Underwriting
The most important distinction between Pre_Qualification and Pre-Approval is that the pre-approved buyer is ready to buy and their loan is only conditioned on the appraisal value of the home they are planning to purchase. The underwriting decision in the case of a pre-approved buyer has been completed.
In contrast, the Pre-Qualified borrower might not have documented their income or assets. In the case of Pre-Qualified borrower there is no guarantee that when the file is sent to underwriting, the borrower might be approved for a loan without any further collateral or co-signer.
Finally, keep in mind that not all pre-approvals are created equal. For instance, Wells Fargo pre-approvals are reliable since the bank has put a very strict process of issuing a pre-approval to their borrower.
So unless your buyer can produce a strong Pre-Approval, keep marketing the home and don’t just rush to close. The right buyer for your property is out there, but they have not found your home yet.
Pre-approved buyer is a