Pre-Qualified or Pre-Approved: Preparation Is Key in a Seller’s Market


There’s an old English proverb by John Ray that perfectly sums up the current real estate market: “The early bird catches the worm.”

The current market for buying a home is very active and fast paced.  It is a true seller’s market, which means there is very little supply of homes for sale and high buyer demand.  Every buyer will be competing with several other buyers on the same home, often forcing a quick decision to write an offer to purchase.  If a buyer waits too long or does not put in a high enough bid, they may get beat out by another ready-willing-and-able buyer.

Getting pre-approved by a local, experienced lender will be instrumental in having your offer accepted.

Pre-Qualified or Pre-Approved?

Even though these real estate lending terms have been out there for a long time, there is still confusion on what the difference is between a buyer getting pre-approved versus getting pre-qualified. It’s important to understand the difference to avoid delays and gain an edge over other buyers. 

Pre-Qualified:

 Getting pre-qualified is the initial step in the mortgage process and is sometimes used to help buyers determine a rough idea of what they can afford.  It is a very simple and a rather quick exercise.  You verbally supply financial information to your lender, including debt, income, assets, and credit information.  After a review, your lender will pre-qualify you for a certain loan amount.  Please note, the lender in this example is not pulling a credit report or verifying income or assets.  The lender is relying upon information provided by the borrower.  Getting pre-qualified doesn’t carry the same weight as being pre-approved and does not guarantee approval of your mortgage loan (even if it is under your pre-qualified amount. 

Pre-Approval:

Getting pre-approved is a more involved process by both the lender and the borrower.  The buyer will complete a formal application for credit with the financial institution and supply the lender with various income and assets documents, including but not limited to paystubs, bank statements, W-2’s, federal income tax returns, and retirement accounts statements.  The lender will also perform a credit report check to see what the borrower’s credit scores are.  The lender will review all necessary financial and credit information to determine how much the borrower can be pre-approved for.  This is a more accurate assessment of the borrower’s ability to repay the loan amount.  Also, because the credit report is pulled, the lender can more accurately determine what mortgage options are available and what the interest will be for that particular loan.  With a pre-approval, you will receive a conditional commitment in writing for an exact loan amount.  This puts you at an advantage when dealing with a potential seller compared to someone who does not have a pre-approval or who has only been pre-qualified.   The other advantage of this route is you will know exactly how much you can afford before you start looking at houses.  

Once you have found a home, had your offer accepted, and have gone through the financing process, you will eventually receive a loan commitment from your lender. At this stage, the lender has approved the loan to go to closing (subject to any underwriting conditions).  By this time, the appraisal has gone through the review process and has been approved.  This is a commitment that the bank will lend money to you.

Serious Buyers Get Pre-Approved

A pre-approval and a pre-qualification are not the same thing.  Don’t assume the bank will provide your loan until you have been pre-approved.  Getting pre-approved before you start looking at homes will reduce your stress levels and will give the seller some peace of mind knowing you are a serious buyer. 

The State Bank of Cross Plains is a local community bank who offers a great variety of loan programs and can pre-approve potential home buyers quickly.  We can help you be the early bird and get the home of your dreams!

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