What is the difference between the pre-qualification letter and pre-qualification approval
Both pre-qualification letters and pre-approval letters are important tools for homebuyers to demonstrate their creditworthiness to sellers and real estate agents. However, there are differences between the two:
Pre-Qualification Letter:
- A pre-qualification letter is an estimate of how much a borrower may be able to afford to borrow based on information provided by the borrower, such as income, debts, and assets.
- The lender does not verify the accuracy of the information provided by the borrower.
- A pre-qualification letter is not a guarantee of a loan approval.
- Pre-qualification letters are often used early in the homebuying process to help borrowers determine their price range and to show sellers and real estate agents that they are serious about buying a home.
Pre-Approval Letter:
- A pre-approval letter is a written commitment from a lender to approve a loan up to a certain amount based on verified information about the borrower's creditworthiness, income, employment, and debt.
- The lender reviews the borrower's credit report, income documentation, and asset statements to assess their ability to repay the loan.
- A pre-approval letter is not a final loan approval, but it demonstrates to sellers and real estate agents that the borrower is financially qualified to purchase a home.
- Pre-approval letters are often used closer to the time of making an offer on a home to strengthen the buyer's position in a competitive market.
This is the Google Home Affordability Calculator - Get an idea on what you can afford.
In summary, a pre-qualification letter is an estimation of a borrower's purchasing power based on self-reported information, whereas a pre-approval letter is a more formal assessment of a borrower's creditworthiness based on verified information. While neither guarantees a final loan approval, a pre-approval letter carries more weight in the homebuying process.