You’ve probably heard the terms pre-qualification and pre-approval. These two terms are often used interchangeably, but they have very different meanings. When you make an offer on a house, you’ll need to include your proof of ability to purchase. This is a letter from your lender based on your pre-qualification or your pre-approval. A lender letter is necessary to make your strongest offer to the seller. Without it, a seller may not even consider your offer.

What is the difference between a pre-qualification and a pre-approval? Which one is better? I sat down with Mary Greenwood (NMLS #459324) of NFM Lending to break it down for you.

Transcript

Mary Greenwood: Hi, I’m Mary Greenwood with NFM Lending.

Jay Collier: I’m Jay Collier with Live Dream Colorado.

Mary: And we want to just talk about some fundamentals when it comes to buying a house. Like, where do you get started? What are the building blocks that you need to remember? And one thing that we realized is that people don’t usually know the difference between being pre-qualified and being pre-approved.

Jay: What’s the difference, Mary?

Mary: Well, from a lending standpoint, a pre-qualification is when I talk to a buyer as a lender, and we talk about what they think their credit score might be, what their income and what their debts are, how much money they have in assets, if they need down payment assistance. And that conversation is really just a conversation, and I can guess how much they qualify for based on their income versus their debt and walk them through the process.

Now, a pre-approval is a little bit different, and it’s a little bit more intensive. So, you’ll fill out a loan application, do a soft credit check, and we’ll grab pay stubs, W-2s, bank statements. We’ll fill it all in and send it over to the underwriter for review. So as a REALTOR®, Jay, which one do you prefer?

Jay: We very much prefer the pre-approval because that is like your golden ticket. That way we can shop confidently knowing that the houses we’re looking at that those are the houses that you’re going to be able to follow through with the purchase on. And when we make those offers, we’ll also attach your pre-approval so that seller knows that you are also qualified to buy their house. And that way we also know what price point to look at so that we’re looking at houses that fit your budget. We don’t want anybody to be disappointed, and we want you to find the right house that’s right for you.

Mary: Exactly. Thanks for joining us!

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