What is Difference Between a Pre-Qual Letter from a Lender and a Pre-Approval?
Actually, a pre-qualification is an informal look at your financial status. A lender or mortgage broker will ask a potential buyer basic questions about income, assets, employment history and debt. Based on those answers, the buyer is given an estimate of what he or she should be able to afford. Sometimes a credit history is run but not always. A buyer then goes out and looks at homes anticipating that there will be no problem making an offer and securing that home. Not so fast! Financial institutions require formal documentation and often credit issues arise when a full investigation is done. Experienced real estate agents insist that buyers get pre-approved for a mortgage before they begin their search!
Pre-approval is a more lengthy and formal process. It requires an application, documentation and review by the lender. A credit report is pulled and the score and history is analyzed. Tax returns for the past three years are normally necessary (especially if you are self-employed). Bank statements and employment pay stubs are also required. The lender will often request a list of your assets and liabilities for example car loan payments, school loans, child support, etc. The lender needs to verify if you are a good risk and if you will be able to repay the mortgage on time.
Sellers feel more confident accepting an offer when a buyer has been pre-approved. In a multiple offer situation, a pre-approval letter in most situations carries more weight than a pre-qualification.