4 - What is a Pre-Approval / Pre-Qualification?

Today we’ll be talking about what is a pre-approval or pre-qualification.

We’ll also talk about what kind of documentation you may need to get that letter.

Let’s start at the beginning, a pre-approval or pre-qualification are both letters that your loan officer will create that states how much of a loan you could be approved for. This letter is used while you are shopping for homes as well as when submitting offers on homes.

See detailed show notes about Pre-Qualifications vs Pre-Approvals and when you need one.

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[phone]
[e-mail]

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Legacy Homes Realty

Episode Transcript

Philip (00:00):
Today, we'll be talking about what is a pre-approval

(00:02):
or pre-qualification.
We'll also talk aboutwhat kind of documentation
you may need to get one.
Welcome to the loan prospodcast, where we help make
you a more informed home buyer.
We're here to help you navigatethe home buying process with an

(00:23):
emphasis on the lending side.
Let's talk about whatis a pre-approval or
pre-qualification letter.
We'll also talk about thekind of documentation you
may need to get that letter.
Let's start at the beginning.
A pre-approval orpre-qualification.
Now they're both letters thatyour loan officer will create
that states how much of aloan you could be approved

(00:44):
for this letter is used whileyou're shopping for homes,
as well as when submittingoffers on homes, a pre-approval
and a prequalificationletter are actually quite
different when it comesdown to how strong they are.
Let's start with a pre-approval.
A preapproval letter isthe stronger of the two
because in order to get apreapproval letter, you have

(01:06):
to actually apply for a loan.
The application willask for your employment
information, your income,your debts, and your assets.
Based on that information,the lender will pull your
credit and do what's calleda hard credit inquiry.
This will temporarily loweryour credit score by a few
points, but it will give thelender a more accurate picture
of your financial situation.

(01:28):
Once the lender has all of thatinformation, they will then
determine how much of a loan youare approved for, and they will
send you a pre-approval letter.
Let's talk about apre-qualification a
prequalification letteris not as strong as a
preapproval letter becauseyou do not have to actually
apply for a loan to get aprequalification letter, to

(01:50):
get a prequalification letter.
You simply provide the lender.
With some informationabout your employment,
income, debts, and assets.
Based on that information,the lender will give you a
letter stating how much of aloan you are qualified for.
As you can imagine sincethe information hasn't
been verified, theprequalification letter isn't
as strong as a pre-approval.

(02:12):
Now that we've gone overthe difference between
a pre-approval and apre-qualification letter.
Let's talk about whatkinds of documentation you
may need in order to geteither of those letters.
For a preapproval letter,you will need to provide
the lender with your lasttwo years of tax returns.
Your last two months of bankstatements and your most recent
pay stubs, your social securitynumber, your date of birth

(02:33):
and official identification.
And any other documentsthat show income debts, or
other payments that you maybe making or receiving like
alimony or child support.
For a prequalification letter,you will not need to provide the
lender with any documentation.
You will simply need to givethe lender some information
about your employment.

(02:54):
Income.
Uh, debts and assets.
Now that you know,the difference between
a pre-approval andpre-qualification letter and
what kind of documentationyou may need to get either
one of those letters you'reon your way to being a
more informed home buyer.
When are they used?
The letters are used when youragent is making appointments

(03:16):
for you to see homes.
They're typically used to ensurethat the people coming through,
looking at the homes for saleare already qualified buyers.
If you don't want to get apre-approval or want to look
at homes and are not in themarket to purchase, going to
open houses is the best option.
COVID also had a biggerimpact on these, in years

(03:36):
past, it wasn't as muchof a requirement to have a
pre-approval to tour a home.
As people are preferringto reduce the number of
people in their home.
This helps keep that number tojust those who are in the market
and could purchase the home.
The second time these areused is when your agent
is submitting an offer.
They put together a packet,which will include this letter,

(03:58):
helping ensure that your sellersknow you have gone through the
process, and a lender has statedthat you have the funds and
the means to purchase the home.
And finally let's discuss howlong this process can take.
Most pre-approvals take a lenderabout an hour to input in the
system and run the numbers.

(04:18):
The more complicatedyour finances, the longer
this process takes.
Some items may need to berun by the processor or
underwriting teams to ensure itis being calculated correctly.
That can add an extra dayor two to the overall time.
If your finances arenot complicated, you can
expect a pre-approvalthe same or next day.

(04:38):
If it takes any longer, thisusually means your finances
are either more complicated oryour loan officer may just be
busy and not able to dedicateenough time to your file.
If you have any questionsabout the loan process, or if
you're ready to get startedshopping for homes, we can help
just go ahead and reach out.
I hope this has beenhelpful and makes you a

(04:59):
more informed home buyer.