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“Pre-Qualification” is often an overused term. There are really two ways to obtain information from a lender showing if you have the ability to qualify for a loan for a home. In each case the lender must send you a Good Faith Estimate, Truth-in-Lending statement, appropriate state disclosures, and a letter specifying the terms under which the lender expects to provide you with financing.

A “Pre-Qualification” letter means that a loan originator has taken information from you verbally about your income, assets, and employment. A credit report is ordered as well. Based on your verbal answers, the loan originator gives you a rough idea of the loan amount you might obtain, possible rate of interest, and likely down payment. Often, the information is input to automated loan approval software to provide a quick analysis of your ability to qualify. Pre-Qualifications are issued by loan originators or sometimes automatically by a lender’s retail web site. Often real estate agents will ask you for a pre-qualification letter since they are investing their time to assist you in finding a new home. You can provide them with a copy of such a letter from a qualified lender.

Being “Pre-Approved” for a loan means the lender’s underwriter has gone a step beyond the verbal exchange of information to the next stage. At this point they have been given copies of your paychecks, your most recent bank statements, verified employment, verified rent/prior mortgage history, copies of your W-2s and/or tax returns… basically everything needed to underwrite and approve your loan except for the executed purchase contract, appraisal, and title commitment. A Pre-Approval is issued by the underwriter. Technically it is an Approval pending certain conditions to be cleared. Once the conditions are cleared you will likely be moving forward with your loan and the purchase of your home.