Pre-Qualified vs. Pre-Approved

    You often see or hear the terms "pre-qualified" and "pre-approved" in dealing with buying a home. But, you seldom see a clear definition of the difference between the two. That difference is a "Big Difference."

    So What is the difference?

    Pre-Qualified means that a lender has said something like the following. "Judging from what you've told us, it looks as though you could handle a mortgage loan of this specific amount. Notice the caveat, "judging from what you've told us." There is no formal agreement to lend you that amount or any other amount of money. Pre-qualification is used to give you a "guide" to use in looking for a home. And, that is all it is useful for. A home seller will not be impressed that you claim to be pre-qualified even if you have in hand a "pre-qualification letter." Why? Because of that caveat. No factual check has been made of the numbers you've discussed with the loan officer including whether or not you over-stated your actual income and included all of your current obligations and debts.

    Pre-Approved, on the other hand, says that you have been through a fairly rigorous process. That process includes things like proof of your employment including how long you've been employed as well as the amount of income you earn. Bob Henley, a Sarasota FL real estate agent states that "frequently, lenders will want to see your last two years income tax filings as proof of your income." For those who take their income in cash and forget to report it on their income tax filing, recognize that that income is not going to count in qualifying you for a mortgage because the lender is only going to trust the number you filed with the IRS.

• the property you wish to buy must be worth enough to serve as security for the loan. This mean, in essence, that the home has to appraise for enough to cover the amount of the loan plus whatever factor the lender assigns to the probability of the value of the home decreasing given current market conditions.
• nothing must have changed in your employment or your financial status since your "pre-approval" letter was issued -- you haven't lost a job, bought a high definition TV, an automobile or something else that adds to your current debt load.

    Sellers are much more likely to accept your offer, even if it is slightly below their asking price, if they have the assurance that you are pre-approved for the loan required for you to go through with the purchase.

    An experienced Realtor like Andree Huffine, Sarasota FL realtor can give you further advice and help you find a home that will both meet your needs and desires and, at the same, time, appraise for the amount you need it to for your mortgage application to be finally approved and the home to become yours.