Pre-Approved and Pre-Qualified – Know the Difference

When you start looking for a mortgage, you will hear the terms pre-approved or pre-qualified. Although these terms are similar, there is one big difference. I recently had a client (lets call him Sam) come to me saying he was pre-approved with the bank for up to $300,000 but wanted to use me because my rates were better. With in minutes of pulling the credit bureau I knew that a home purchase was not in the cards for Sam unfortunately. When I let him know what was wrong, Sam politely told me thanks for my input but they were going back to the bank because he was pre-approved there. A couple of days later, Sam was told the same thing I had mentioned to him. He was devastated as he was very excited to go buy a home. So what happened here?

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Sam went to the bank and got pre-approved. Some banks have a system where the employee does not get to see the credit bureau they get to see the credit score. Although Sam had a great credit score, his only credit was a $400 credit card that was closed 3 years ago. This is not going to work with any of the lenders or insurers.

This is the difference

A pre-approval is just simply a person imputing your information that you are telling them into their computer and coming up with a number that the computer says they can purchase. Just like that Sam was pre-approved up to $300,000. No credit was checked, and no income was verified. Anyone should be able to see how something can go wrong here.

When you are pre-qualified, Your credit will be checked and you will be asked to bring in income confirmation documents. These can be recent pay stubs, income letters, notice of assessments or hopefully all of the mentioned. With this information a person or lender can get a more accurate view of what is happening and any issues that may come up during your mortgage purchase.

Keep in mind, being pre-qualified still does not mean that you are 100% approved and you should go write an offer with no finance condition. Things can still happen with the mortgage. If the mortgage is insured, the insurer may not like the price of the home you are buying or the condition of it. You should always have a finance condition on your offer even if you are financing a minimal amount.

So if you go into a meeting for a mortgage amount and the person has not asked you for any information but told you that you are pre-approved up to a certain amount. before you get too excited ask the to pre-qualify you instead.


Scott Bourke

Regional Mortgage Group – Mortgage Alliance                 403-598-1055

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