Dale Team Atlanta

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Pre-Qualified vs Pre-Approval

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said February 11, 2011

filed under: Latest Real Estate News

Many people use these terms interchangeably, but there is an important difference, especially if you are selling your house and are trying to evaluate whether a buyer can qualify for a mortgage or not.

‘Pre-qualified’ means that a mortgage broker has spoken with the buyer, taken information over the phone, and has run a buyer’s credit. The mortgage broker deems the buyer “pre-qualified” if all the information the buyer has provided verbally is correct.

‘Pre-approved’ means the mortgage broker has actually gathered from the buyer all the necessary documentation to prove what the buyer is saying is correct.

If you are a seller, you want a pre-approval letter from your buyer’s lender. It means so much more than a pre-qualified letter.

That’s not to say the buyers are out to intentionally provide false information to lenders. It’s just that some things get lost in the translation. Here are some problems I’ve run into:

  1. 1. The buyer is self-employed and reports to the lender his income. It’s not until the lender gets his tax returns that it comes out that the buyer has legitimately written off half his income, thereby qualifying him for a much smaller loan.
  2. 2. The buyer tells the lender how much he plans to put down on the house, but doesn’t mention that the money will be a gift from his parents. Only when the lender asks for the documentation of funds does that fact come out. For some loans, gifted down payments can be a real no/no.

If you are a buyer and you are competing for a property that someone else wants too, having a pre-approval letter can give you the edge over the other party.

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