Denver CO First Time Home Buyers Series – The Differences Pre-Approval vs. Pre-Qualification and Its Effect On Negotiations (Part 2)

It is natural for Denver CO first time home buyers to want to jump right into the house hunt without really planning out the path to become a home owner. Denver CO First time home buyers will spend hours and even days online looking at homes and plugging the recent interest rates into the available mortgage calculators.

Most people (approximately 95%) purchasing a home require some sort of financing. That makes it very important when buying a home to understand the process for obtaining one. It is also important to know what the difference is between a pre-approval and a pre-qualification.

When a seller receives an offer for their home they automatically understand that there is a desire on the part of the buyer to purchase it. What is not as clear to them is – Can the Buyer Actually Complete the Purchase? Sellers want to see that buyers have been screened by a professional lender to make sure that if the seller agrees to the buyer’s offer it will actually result in a sale. The method used to show the seller that the buyer has been screened and can actually purchase the home is a pre-qualification in the form of a lender letter submitted with any offers.

During a pre-qualification the borrower provides financial documentation and information to the lender which is then analyzed, a credit report is pulled and everything reviewed. At that point the lender will determine what type of financing the buyer qualifies for to issue an applicable letter.

During a pre-approval process all the same steps as in the pre-qualification process are completed. In addition the lender will require financial documents from the borrower to verify assets.

What is the big difference?

A letter of pre-qualification just lets the seller know that the buyer reviewed some general information with a lender. A pre-approval letter shows the seller that the buyer has gone through additional steps to ensure the financing is secure and thus it carries more weight. 

One additional step which could be taken to give even more weight to a buyers offer is to gain a mortgage approval to submit with an initial offer. A mortgage approval shows that the lender received supporting financial documentation and an underwriter has reviewed and approved the loan application pending the buyer finding the right property which they would like to purchase. Sellers understand the current lending environment is tough and give due consideration to the most qualified home buyer. This is one extra step to make that impression.

Documentation you will need for your loan application.

• W2’s, 1099’s and tax returns (for past 2 years)
• Bank Account Statement – Any checking and savings accounts.
• Statements from any additional financial accounts (pensions, retirement, CD’s)
• Recent pay stubs (minimum last 30 days)