Pre-Approval And Pre-Qualification – Which Letter Holds The Most Home-Buying Power?

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For many home buyers, the difference between a pre-qualification letter and a pre-approval letter is as clear as mud. While shopping for a home does not require the home buyer to have either of these letters in hand, knowing which letter will best suit the purposes of the home buyer can lend a wealth of information and buying power to the prospective home buyer. Home buyers with a proper letter tend to receive greater care and better treatment from the home sellers.

Pre-qualification Letter

A pre-qualification letter is one of the simplest documents to obtain from a mortgage lender. The prospective buyer will set an appointment with a mortgage loan company. At the appointment, the loan officer will ask simple questions about income, debt and savings. The answers to these questions will render a quote, of sorts, as to how much the buyer can afford to spend. There will be no verification of income or credit worthiness checked during this appointment. The pre-qualification letter in no way binds the mortgage company to a loan for a home sale. On the contrary, there are actually clauses within the letter than relieve the mortgage company from any legal obligations whatsoever. This clause, in essence, spells out plainly the lack of professional clout a pre-qualification letter truly holds.

Pre-approval Letter

A pre-approval letter, on the other hand, is much harder to obtain. The home buyer will go through the actual approval process including, but not limited to, credit checks, debt to income ratio surveys and verification of downpayment. The pre-approval letter does state that the mortgage company has made a preliminary approval of the loan and is willing to complete the loan process in order to finalize the sale. The pre-approval letter does not, however, lend a definitive answer as to whether the sale will go through. Before a final sale, the buyer will again have to go through a credit check and present the downpayment.

Pre-approval and pre-qualification letters are two very different documents. There is little or no value to a pre-qualification letter other than giving the prospective buyer a little knowledge to search on. When a home buyer is truly interested in purchasing a home, a pre-approval letter will lend a bit of legitamacy to a home walkthrough. The interest shown by a prospective home buyer with a pre-approval letter in hand is interest the home seller will be keen to attract.

(Article was originally published by RS Banks on Suite101.com)

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