Pre-Approval or Pre-Qualified - Which is better and why?

A pre-qualification is normally issued by a loan officer, who, after interviewing you, determines the dollar value of a loan you can be approved for. However, loan officers do not make the final approval, so a pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues you a pre-qualification letter. This pre-qualification letter is used when you are making an offer on a property. The pre-qualification letter indicates to the seller that you are qualified to purchase the house you are making an offer on.

Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to an underwriter and a decision is made regarding your loan application. If your loan is pre-approved, you are then issued a pre-approval letter. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having cash in the bank to pay for the house!

Pre-Approval gives the Borrower much more credibility. They are electronically approved for $X00,000. They have:

· Completed the loan application
· Pulled Credit
· Supplied all necessary documentation (pay stubs, W-2, asset verification, etc)
· The loan would be electronically underwritten and approved.

Pre-Approval lets the seller know you are seriously interested in purchasing the home. If two like offers are on a home at once the sellers will take the Pre-Approved buyer over the Pre-Qualified buyer. The Approved file would then be reviewed by a third party and then a closing can be scheduled.

To be Pre-Qualified a borrower must supply to the loan officer:

· A Loan Application 
· Pulled Credit
· Income Documents

A Pre-Qualification states the borrower is qualified for$X00,000. Not Approved for the loan. This does not carry the same credibility as an approval. Ultimately the borrower may not be approved for the mortgage, for many previously unseen conditions. This could result in loss of earnest money and rights to the purchase of the home. The Pre-Qualified borrower has not begun the underwriting procedure as the Pre-Approved borrower has.