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Pre-Approval vs. Pre-Qualified: What’s the Difference?




How do people afford houses? They cost so much money!

The way most people pay for the cost of a house is with a home loan from a bank.

This is a large chunk of money that the bank loans to homebuyers to help them buy their house. Over time, the homebuyer pays the loan back with interest.

Real estate agents should expect their clients to withdraw a home loan to buy a property. Unless they’re sitting on a big mound of money.

So, at some point, you will encounter the word “pre-approved” or “pre-qualified.”

That’s why you should know the difference between pre-approval vs pre-qualified. One guarantees a loan, the other doesn’t, and that will make or break the transaction.


What is a Pre-approval Letter?

Here’s what a pre-approval letter means: a letter that verifies the approval of a specific amount of money that the bank is willing to lend to the home buyer.

Should the buyer meet the requirements of the lender, they will be issued a pre-approval letter. This contains the type of mortgage, interest rate, and terms and conditions. This letter will also state the amount of mortgage the lender is willing to provide to the buyer.

Securing a pre-approval letter is essential. This is submitted along with the offer when buying a home. A pre-approval letter is important to have because it will ensure all parties that there are funds to finance the purchase.

The bank will need the following information to determine if they can approve the homebuyer for a loan:

  • Renting history: Your buyer’s renting history is especially crucial if they do not have an extensive credit history.

  • Credit history: This shows the lender the homebuyer’s history with building good credit.

  • Bank statements and assets: These show the homebuyers liquidated amount of money.

  • Tax returns: This shows proof of the earnings history of the homebuyer.

  • Proof of income: This determines how much income the homebuyer has and their ability to make monthly mortgage payments.

  • Valid ID: This shows proof that the homebuyer is who they say they are.

But, the pre-approval letter is not a guarantee, only the beginning of the lending process. The lender still reserves the right to either accept or reject your buyer's request should they deem it.

Also, a pre-approval letter is not a commitment. Should the buyer choose to back out from the transaction, they can do so without facing any financial repercussions.

What is a Pre-qualified Letter?

So, what about a pre-qualified letter? What does that mean? A pre-qualified letter is a letter that informs the homebuyer that they qualify for a home loan. In other words, the letter proves that the homebuyer has the chance to become pre-approved.

Pre-qualification is the first level, not the final level.

The pre-qualification letter is not a verified document. So, it does not have the same reassurance as a pre-approved letter. This is because the home buyer might not get the loan and they can’t afford the house. No money, no deal.

The goal of a pre-qualification process is to show the buyer if lending is an option. From there, the lender will suggest the options that your buyer has to get a loan.


How to Get a Pre-Qualified Letter


In order for a buyer to be pre-qualified, all it takes is for them to contact the lender. They will then provide them with an overview of their financial history. The lender may ask about their financial status such as their assets and liabilities, as well as their income.

Once the lender has reviewed the information, they will give an estimated loan amount to the buyer.


The pre-qualification process usually only takes a couple of days as it is a high-level assessment. Unlike the pre-approval letter, this does not take into account the analysis of the buyer’s credit history, tax history, and other financial documents.

Find the Right Lender

Before you are able to help your client with their mortgage application process, you must first connect them with the right lender.

When you’re growing your network, connect yourself with lenders. This way, you can find a reliable lender(s) that you can confidently refer to your clients.

Working with a Lender

Once your buyer is connected with a lender, the lender will connect with your buyer. It is the lender’s job to understand the buyer’s financial situation and verify if the buyer can afford a mortgage. Through this process, the lender will determine if the buyer will be pre-approved or pre-qualified.

Final Thoughts on Pre-Approval vs. Pre-Qualified

Both pre-approval and pre-qualified mortgage letters are in the mortgage application process. But, a pre-approval letter is still not guaranteed, it signifies that a lender has verified their financial status. This will provide the buyer with more leverage when trying to secure a deal.

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