pre approval | What is the difference between a pre-qualification letter and a pre-approval letter?

What is the difference between a pre-qualification letter and a pre-approval letter?






Prequalification and prior approval letters both refer to a letter from a lender that indicates how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These letters provide useful information, but they are not a guarantee of loan offer.

There is not a big difference between a previous qualification letter and a prior approval letter. While there are some legal distinctions, in practice, both terms refer to a letter from a lender that says that the lender is basically willing to make a loan, up to a certain amount and based on certain assumptions. This letter helps you make an offer for a home because it gives the seller confidence that you can get financing to buy the home. It is not a guaranteed loan offer.

Do not worry about the words that lenders use. Some lenders may use the words "prior qualification," while other lenders may refer to a "prior approval" letter. Actually, lenders' processes vary widely, and the words they use do not say much about the process of a particular lender. The important thing is that the letter you receive provides enough information for the sellers in your area to take it seriously. The best way to make sure that the letter you have serves your purpose is to ask a nearby real estate agent.

Lenders usually review your credit before issuing a pre-qualification or prior approval letter. Many people wait until they receive a letter of prior approval to seriously start looking for a home. However, obtaining prior approval early in the process can be a good way to detect potential problems with your credit to correct them on time.

Visit consumerfinance.gov for more information or call (855) 411-2372