Difference Between Home Loan Pre-Approval and Pre-Qualification

If you’re by chance have ever taken a home loan from a particular bank or looking to avail one in the near future, you have probably come across the terms pre-approval and pre-qualification. Most people think that this is one and the same thing, with the only difference being the choice of terminology. While this is partly the right answer as pre-qualification and pre-approval share a lot of similarities, there are some differences. Looking ahead to the point where you wish to avail a home loan to purchase land or a house, having a pre-qualification and pre-approval will certainly give you the upper hand. Getting to the point, what is the difference between the two, or are they the same thing?

The Similarities Between Pre-Qualification and Pre-Approval

To help you understand the difference between the two, let’s make it simpler for you to understand and first discuss the similarities between pre-qualification and pre-approval. The similarities are listed below:

• It’s important to realistically know what and which house you can purchase. Going through the process of pre-qualification and pre-approval will help you determine your budget - based on your financial history and financial capabilities - and help you decide on a loan amount that will in most cases be approved - as it suits your financial ability.
• Having either a pre-qualification or a pre-approval letter will give you the upper hand when it comes to the bank approving your loan.
• Considering the real estate market is one that is constantly competitive, having a pre-qualification and a pre-approval letter will certainly give you a better chance of your loan being approved.

What is the Difference Between Pre-Qualification and a Pre-Approval Loan?

There is not much difference between the two to be honest.

• A pre-qualification is the first step of a pre-approval.
• The pre-qualification in most cases is a verbal discussion between the wishful loan buyer and the bank executive.
• The bank executive will request the customer to verbally give his financial details such as credit history, current financial status and income of the last few years, his/her annual income, the company he/she works for, debt-to-income ratio and so on.
• On hearing the answers given by the customer, the bank executive will make a verification and offer you a loan which suits you best - one which is within your budget.

In the case of a pre-approval, the bank will make an in-depth or a comprehensive verification of the customer’s credit score, income over the last few years, annual income, monthly net income, debt-to-income ratio and so on. This process is not done verbally and isn’t based on the details verbally provided by the customer, here the bank executive will do a thorough background check of the customer’s details before giving an approval.

What You Should Not Do After Getting Pre-Approved or Pre-Qualified Loan

Getting a preapproval does not guarantee you getting a loan approval, and before an approval comes through, this is what you shouldn’t do after a pre-approval or pre-qualification.

• Continue to pay your credit bills on time ensuring that your credit score is optimum.
• Refrain from making expensive purchases during this period - like buying a car or expensive furniture.
• Do not shift jobs
• Make sure no new debts are incurred

To sum it all up, the bank is not obligated to give you a loan approval even after you get a pre-approval or a pre-qualification letter. Yes, you certainly have the upper hand, but the bank - based on numerous factors, some of which are already mentioned above - has every right to not approve your loan application.