Mortgage Tips: Pre-Qualified vs. Pre-Approved – What’s The Difference?

Home Buyer Tips:  Pre-Qualified vs. Pre-Approved - What's The Difference?

Without thoughtful preparation, many buyers get drawn into the mistaken notion that if a lender “pre-qualifies” them for a mortgage this means that they have been “pre-approved” for a home loan.  Unfortunately, there's a world of difference between these two terms.  If you've ever been confused by the two, we'll bring you up to speed on how these terms differ - and why a misunderstanding can mean disaster for buyers and sellers alike.


Pre-qualifying facts:

  • Is the initial step in the mortgage approval process.
  • Is generally free, quick and simple.
  • Can be done in person, over the phone or internet.
  • Buyer supplies data to lender regarding their debt, income and assets.
  • Upon evaluating data, lender gives an opinion of the buyer’s loan limits.
  • Loan pre-qualification does not include an analysis of the buyer’s credit report or an in-depth look at the buyer’s ability to purchase a home.
  • The pre-qualified buyer does not carry the same weight as a pre-approved buyer.

 Pre-approval facts:

  • Getting pre-approved is the 2nd step of mortgage qualification and is much more involved.
  • Buyer completes an official mortgage application (usually pays an application fee).
  • Buyer supplies the lender with written documentation to perform an extensive check on the buyer’s financial background and credit score.
  • Following analysis, lender can quote a specific mortgage maximum, interest rate and type of loan/s the buyer qualifies for.

 Advantages of being pre-approved:

  • Buyer is aware of their maximum loan limits and the type of loan program they qualify for.
  • Buyer is aware of down payment requirements.
  • Buyer is aware of the lender limits on seller paid concessions.
  • Buyer doesn’t waste time looking at properties that are beyond their qualifications.
  • Enables the buyer to quickly submit an offer when the perfect property is located.
  • Offers won't be contingent on buyer obtaining financing, which saves valuable time.
  • Seller knows buyer’s offer is serious and likely to successfully close on time.
  • Prevents the buyer from losing out to another competing buyer who is pre-approved.

 Final Step – Loan Commitment:

  • Once a buyer’s offer is accepted and fully executed, the buyer will complete their loan application and move towards the final step which is the “loan commitment”.
  • Home is appraised at this point.
  • Appraisal price must come in at or above the property’s sale price.
  • If the appraisal brings up issues such as; structural problems, accessibility issues, outstanding liens or litigation in progress, the lender may require additional information, remedies and appraisal re-inspection prior to issuing their final commitment.
  • Buyer’s income and credit profile will be checked once again to ensure nothing has changed since the initial approval.

Note:  A loan commitment letter is issued only when the bank is certain it will lend to the buyer, so the commitment letter delivery date listed on the purchase contract should be closer to closing date than to the date of the offer. (The seller can ask if the loan commitment letter has been delivered as soon as the commitment delivery date has passed, so beware of anyone who tries to put an early commitment date into a sales contract).

“If you are thinking of buying, selling, renting your home, or leasing real estate this year we’d love to hear from you!  Working with an experienced professional can boost your profits!”

Acuity Group Real Estate Professionals
564 Dodge Ave Suite A
Elk River MN 55330
Office:  763-633-3535

Thinking of Buying a Home?  Click HERE for Home Buying Assistance

 Selling Your Home?  Click HERE to Schedule a Free Market Analysis  

OUR SPECIALTIES:   Residential & Commercial Seller and Buyer Services, Property Management & Residential Rentals,  Residential and Commercial Investment Property Specialists, Listing & Marketing Specialists, CDPE (Certified Distressed Property Experts), Short Sale Specialists, REO/Bank Owned Sales.  Golf course properties, water front properties, acreage & hobby farms, vacant land, condos & townhomes, industrial/manufacturing/retail properties, association maintained properties, senior housing, luxury homes, vacation & secondary housing.

Serving the following Minneapolis Cities & Suburbs: Elk River MN, Zimmerman MN, Big Lake MN, Rogers MN, Otsego MN, St. Michael MN, Albertville MN, Princeton MN, Ramsey MN, Anoka MN, Nowthen MN, Monticello MN, Oak Grove MN, Burns Township MN, Champlin MN, Dayton MN, Hanover MN, Coon Rapids MN, Blaine MN, Fridley MN, St. Francis MN, Livonia Township, Andover MN, Becker MN, Baldwin Township, Orrock Township, Plymouth MN, Maple Grove MN, Osseo MN.

Serving the following Minnesota Counties:  Sherburne, Anoka, Wright, Hennepin and portions of Mille Lacs and Isanti Counties








Comments are closed.

Share This