What Does a Pre-Approval Mean Anyway?
What is it?
There is a notable difference between a mortgage pre-qualification and a mortgage pre-approval, and it is important to understand these differences so that a potential home buyer is not misled or confused. Very simply, a mortgage pre-qualification indicates that a buyer initially appears to meet the lender’s criteria for funding. This is essentially a worthless determination because the lender has no information about a borrower’s situation other than what is readily available on the internet or in public records. Countless mortgage lenders use such pre-qualification letters and notices in their direct mail marketing efforts to entice home buyers to investigate further.
On the other hand, a mortgage pre-approval statement indicates that a mortgage applicant has (so far) met all of the lender’s requirements to obtain approval for funding. Such a statement will not be available until after the borrower has submitted the necessary documents and applications, along with any money that is necessary to initiate the application process with the lender or broker. An official pre-approval letter or statement from a lender carries a great deal more weight than a mere pre-qualification letter.
Keep in mind that such pre-approval letters are issued to borrowers and their respective real estate agents with the intention of allowing the buying process to continue smoothly, but they are not a commitment to provide funds. The lender is under no obligation to approve the borrower’s application, nor provide any financial means to facilitate a property purchase. Since the pre-approval statement is issued during the underwriting process, there is still a chance that something could prevent a final approval.
