What’s the Difference Between Pre-Qualification and Pre-Approval?

Most of the headlines lately talk about how the market has turned in the buyer’s favor. Well, that may be true in other areas of the country but not in the Westfield real estate market. Sellers still have the upper hand here. In fact, a five-bed/one-and-a-half bath Westfield property just sold recently for $36,000 over asking after just 20 days on the market. So, if you plan on buying a home in the Westfield area, you need to get your financing in order first. Should you get a pre-approval letter or will a pre-qualification work? What’s the difference?

What’s the Difference Between Pre-Qualification and Pre-Approval?

Pre-Qualification

First of all, pre-qualification only takes a matter of minutes. Your lender asks you about your income, your debt, and if you have any assets. Then, they take that information and estimate how much you can afford to spend. In a day or two, the lender sends you an official pre-qualification letter. However, they do not run a credit report. That can have a huge impact on whether or not they approve you for the loan and how much of an interest rate they charge. Therefore, pre-qualification really acts as more of a reference point for your price range rather than an actual approval.

Pre-Approval

Pre-approval on the other hand takes much longer. First, you fill out a mortgage application. Then, they pull your credit report. After that, you provide proof of income and assets (W2s, paycheck stubs, bank statements, tax documents, etc). They also verify employment. Once they perform their due diligence, the lender lets you know whether or not you are a good candidate for loan approval and for how much.

Most Westfield area sellers ask that buyers submit a pre-approval letter with their offer. In fact, they may not even consider an offer without one. But keep in mind that pre-approval does not equal final approval. You need to avoid making any major changes during the escrow process (buying a new car or furniture, opening up credit cards, changing jobs). Otherwise, you may find yourself denied a mortgage loan.

Between pre-qualification and pre-approval, I always suggest you get pre-approved. If possible, you may want to ask your lender about pre-underwriting. That is just the next step before final approval. It not only strengthens your offer in the seller’s eyes, but it also shortens your escrow time. That allows you to close on your new home even faster.

Westfield Area Y Men’s Club Christmas Tree Lot

Finally, I just wanted to say “thank you” to everyone who came to our Christmas tree lot. We sold out early again this year. You guys are amazing. We’ll see you again next year. Merry Christmas to you all!

Scott Gleason, CRS at Coldwell Banker Realty – East, NJ Luxury Homes