Pre-Qualified vs. Pre-Approved

When you begin the process of applying for a loan, you may obtain a pre-qualification and/or a pre-approval. Though the 2 terms sound similar, they are not, and there is a distinct and important difference between them. A pre-qualification is a determination of how much of a mortgage you qualify for based on un-substantiated information. Your credit will not be pulled, and hence your credit report not examined. Income and assets will also not be verified. A pre-qualification is a rough estimate, and a pre-qualification letter is generally unacceptable to a realtor or any other 3rd parties.

However, a pre-approval letter carries far more weight. With a pre-approval, the borrower’s credit report has been pulled and evaluated for credit score, mortgage lates, bankruptcies, etc. Additionally, the Keystone Funding representative has completed a Uniform Residential Loan Application for the borrower, and substantiated the information in that application with various supplement documentation as mentioned above (ie W-2s, bank statements, etc.). When a borrower has been pre-approved, he or she is provided a commitment from the lender based on certain conditions (ie property appraises for appropriate value, 24-mo chain of title is demonstrated, etc). If the borrower is shopping for a home, the realtor will require a pre-approval letter, rather than a pre-qualification letter, before showing properties to the borrower.