How “Qualified” Are You?

I often see the terms “pre-qualification” and “pre-approval” used interchangeably by buyers, sellers and their agents, but there are important differences you want to know when looking to buy or sell a home in Upstate, SC.

Definitions may vary a little from lender to lender, but these descriptions are a good start:

Pre-qualification: The lowest and often least accurate expression of a buyer’s ability to complete a home purchase. The lender (or lender’s website in many cases) has compared the potential buyer’s income and debts to conclude that the buyer can likely afford to purchase a home in a certain price range. The lender typically runs the buyer’s credit, but the buyer’s  financial information is not verified.

It’s often said that “pre-qualification” letters aren’t worth  the paper they’re written on, as the potential buyer may not have disclosed their full financial  situation and without further investigation their ability to purchase cannot be completely  verified.  

Pre-approval: Similar to a pre-qualification, but more valuable to both buyers and sellers because additional due-diligence has been done by the lender. Buyers are often required to submit a few financial documents (bank statements, pay stubs, tax records, etc.) for  verification prior to the lender issuing a “pre-approval” letter. 

Pre-underwriting: The most comprehensive and certain form of buyer pre-approval. The lender collects, analyzes and approves all necessary financial documents from the buyer and issues their final financial approval of the buyer. Very few lenders will “pre-underwrite” a buyer  as the process is time consuming and expensive, but sellers and their agents are generally  impressed by buyers that are fully approved in this manner.  

So what does this mean to YOU?  

If you’re a seller… 

Pre-approved and pre-underwritten buyers are less risky. If you accept an offer from one of  these buyers there’s a much smaller chance that your sale will fall through and you’ll have to put your home back on the market.  

If you’re a buyer… 

Let’s be honest, the loan application and approval process is a hassle. Lot of time, and lots of paperwork, but you’ll have to do it either before you find your new home or after you’re under contract. It’s best to give your lender all the financial documentation they ask for (before you start submitting offers) to get “pre-approved or “pre-underwritten” to ensure that you’re financially qualified to purchase and to reduce the risk that your lender will deny your loan at  the last minute.

If there’s a problem you definitely want to find out sooner rather than later, potentially after you’ve completed and paid for your home inspections and appraisal, sold your  current home, or terminated your lease and gotten excited about moving into your new home.

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