Pre-Qualification and Pre-Approval, what is the difference?

Gainesville Home Buyers often wonder what is Pre-Qualification and Pre-Approval?   Normally, when a home buyer starts house-hunting in Gainesville and Alachua County, it is best for them to get pre-qualified with a local mortgage lender.  Often the two different terms that are used during a loan inquiry and application.  I wanted to get a good description of the two terms for people that are starting to buy a home in Gainesville.

I asked Leslie Remy at HomeBanc to give me a step by step description of the two terms: Pre-Qualification and Pre-Approval.  I’m hoping you will find these explanations helpful!

What is a prequalification?

A prequalification is a very basic look at a consumers income and credit to determine if they will be able to qualify for a mortgage loan. It consists of looking at the potential borrowers credit and income to see if credit scores meet the guidelines and also to see if their debt to income ratio will fit the guidelines.

When I look at a potential buyer for a prequalification I dig a little deeper to find out how long they have been on their job ( a very important factor) and if they are salaried, hourly, commissioned or self employed. I also inquire  to see if they have down payment money. Another important factor is whether or not they are paying or receiving child support.

If accurate information is received then you will most likely have an accurate approval that will get you to the closing table.

What is a preapproval?

A preapproval is all of the above plus completing the loan application. Once the loan application has been completed it is run through the DU (desktop underwriting ) system.  You will instantly know if you have an approval or not. Always remember garbage in is garbage out. To back that up I always like to get bank statements, paystubs, W-2’s and tax returns… two of everything. I generally will never give a preapproval for a self employed borrower without analyzing the tax returns.

****  Thanks to Leslie Remy at HomeBanc for this home loan information for buyers in Gainesville Florida.