Clients may not know the difference between being pre-qualified or pre-approved for a mortgage loan.  The better you as their agent explain the difference in these increasingly important “pre’s,” the better, smoother and more complete your transactions with your clients will be.

Being pre-qualified truly is the first step in the home search process.  (The prospective buyer may think the first step in the search process is finding the perfect house online.)  The process is informal, can be done over the phone or online with a lender, usually doesn’t cost anything, and takes just a little bit of time.

The prospective buyer supplies a lender with their overall financial picture.  That picture includes their amount of debt or liabilities, their income assets (savings, salaries, commissions, gifts, etc.), their credit history, the money available to them for a down payment and closing costs.  The lender then gives the prospective buyer an idea, a ballpark figure, of the mortgage amount for which they could expect to be qualified.  The lender does not verify the information the prospective buyer supplies to her/him.  And the lender does not guarantee an approval for a mortgage amount the prospective buyer might anticipate.

Two affirming pieces of information come from being pre-qualified.  One, it indicates to the prospective buyer and to the agent the types of properties to search.  Two, it indicates the prospective buyer may truly be ready and/or willing to borrow the amount of money necessary to purchase a house.

The pre-approval process eliminates any and all guesswork.  The process is formal, can take several days, the information supplied by the prospective buyer is verified and the process is confirming.

Underwriting and processing teams review the prospective buyer’s complete financial/credit package.  Supporting documentation and automated loan approvals back up that financial package.  Credit histories are checked, financial backgrounds and employment histories are verified and the ability to qualify and be responsible to a mortgage is determined.

Becoming pre-approved by a lender most definitely strengthens a prospective buyer’s credibility and position to make an offer on a home.  And sellers are more amenable to buyers who have already shown (proven?) they can actually afford to buy their house.

More and more, many agents in many locations throughout the country encourage prospective buyers to get themselves pre-qualified prior to actually beginning a home search.  And more and more, some agents in some locations (Silicon Valley, San Francisco, New York, Seattle, Denver) require prospective buyers to get themselves pre-approved prior to initiating a home search.

Knowing the difference between pre-qualified and pre-approved is essential to all the players involved.