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PreApproval vs PreQualification - What's The Difference?

When you decide that the time is right to buy property and you need financing, you're going to have to talk to a bank.

Many buyers ask me: "What's the difference between a PreQualification for a loan, vs. a pre-Approval?"

Hi- my name is Rebecca Brooks, real estate broker here in the SF Bay Area. I've been working with buyer clients for many years, selling hundreds of homes; and I've handled multiple transactions.

Now, whether you're a first time buyer or an experienced buyer, if you're not paying cash, you're going to need to align yourself with a lender. In fact, consulting with a mortgage professional should be one of the very first things you do, so that you are able to analyze your monthly budget and determine purchase power. Wouldn't you rather be realistic about what you can actually afford vs. falling in love with a listing that is too expensive for you and is out of your reach?? You can waste a lot of time and it can end up costing you thousands of dollars if you aren't TRULY qualified.

A pre-qual, or prequalification, is NOT a true approval; it's only the initial step in the home loan process, where you just discuss your financial situation with the loan officer. This may be done verbally or maybe you filled out a loan application with your debt to income numbers, but nothing is actually verified.

The preapproval, or 'full loan approval' is where the Buyer actually provides the lender with all of the necessary documentation, such as tax papers, proof of employment, maybe bank statements, verifications of accounts, etc. At this point, the lender also pulls a credit report; once that happens, combined with verified information on your loan application, the lender can then advise you on available loans that might work best for you, depending on your situation.

Shopping for a loan is just that - many Buyers don't realize that there are multiple loan programs or 'loan packages' available; and a borrower's income, amount of downpayment and credit score are all factors that contribute towards what loans at which interest rates work for you and your situation.

As a Buyer, you will want to go through the entire approval process. Once the lender has done things like verified your employment, seen your taxes, looked at your bank statements, they will be able to let you know how much they will loan you and what your payments will be. It’s essential that you do this; you don't want to get into contract and then realize that you either can't afford the house that you fell in love with, or else that the lender can't give you any financing, due to unverified information If you get into contract first, without being preapproved and then it's determined that you can't get approved, it might put your initial deposit at risk and any money that you’ve spent on things like inspections or the appraisal would have been a waste. Don’t fall into that trap!

Call us and let us walk you through the safest and most strategic way to become a homeowner. We have a long list of local mortgage consultants that we've successfully closed multiple transactions with. We are here to protect your best interests and provide you with information that helps you reach your home buying goals.

Finally, if you're going to buy, and you need a loan, make sure you get your loan approval in writing, before you go home shopping. Here in the Bay Area, it's customary for Buyers to provide a preapproval letter with their offers, especially in a multiple-offer situation. Reach out to us if you'd like to receive our list of top-notch mortgage professionals.

For more real estate advice, check out our 'Resources' tab on our website. Once again, I'm Rebecca Brooks with Bay Area Local Real Estate and we'd be happy to guide you in your home buying journey! I am a senior sales agent and top producer who offers extensive residential real estate experience helping sellers and buyers in San Francisco, Marin and the Greater Bay Area. Visit my bio:

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