The Pros and Cons of Mortgage Pre-Qualification
The main difference between a mortgage pre-qualification and a mortgage pre-approval is the fact that a Loan Officer will verify information for a pre-approval.
For a mortgage pre-qualification, you can have a brief 10–15 minute phone call with a Loan Officer where you state your gross monthly income, your current assets, your credit score, and your current monthly debts. The Loan Officer then calculates your pre-qualification amount and provides you with a letter that you can use for viewing properties.
The downside of a pre-qualification letter is that all the information is stated by the prospective buyer and is not verified by the Loan Officer. So, when a seller’s real estate agent has two offers in hand, one a pre-qualification letter and one a pre-approval letter, they will see the pre-approval letter as a stronger offer because they know a Loan Officer has verified income, assets, and credit for this prospective buyer.
- It is a very quick process. A Loan Officer can provide a pre-qualification after a brief phone call.
- Loan Officers do not need to pull credit for a pre-qualification letter.
- It can be a good starting point in case you are not ready to start making offers, but you want to know what price range you should be looking in.
- A pre-qualification letter does not have an expiration date. A pre-approval letter, on the other hand, typically expires after 90 days after the credit report is no longer deemed valid by Fannie Mae and Freddie Mac.
- The information verbally provided to the Loan Officer for a pre-qualification may not be accurate, and it may give you a false idea of the price range you can afford. For instance, you may think your credit score is 750 from a credit website, but the Loan Officer may officially pull it with the three credit bureaus (TransUnion, Equifax, and Experian) and it may be much lower. This change in credit score between expected and verified may affect your purchasing power.
- When a listing agent for a seller receives multiple offers, much like in today’s competitive market, they will view pre-approval letters as stronger offers.
Dylan Walsh has been a Loan Officer with Police Mortgage, headquartered in Chicago, IL, for the past 5 years and has personally overseen more than 900 mortgage transactions.