Pre-Qualification vs. Pre-Approval

Pre-qualification and pre-approval are terms we use almost every day. Lender Commitment can be confused with pre-approval as well. But, each is distinctly different. Here’s a summary explanation of how each of these terms differs from one another that might be helpful when these terms come up in conversation with your Realtor or Mortgage Lender.

Pre-qualification

Getting pre-qualified is usually the first word that comes to everyone’s mind when we think about home financing. But out of the three terms, it provides the least amount of certainty in a buyer’s spending power. Pre-qualifications are a brief look at a borrower’s financial situation, considering their income, assets, and debt. Being “pre-qualified” means the borrower has an estimated figure of how much they can borrow.

Pre-approval

A pre-approval is the result of a more thorough review of a buyer’s financial situation. More documents are necessary, yet once the mortgage application is complete and the lender reviews the borrower’s file, a Pre-Approval provides a much more certain dollar figure that your homebuyer can count on when reviewing new homes to buy.

Lender Commitment

The commitment is a binding promise from a lender that a specified loan amount will be made available, at a specific interest rate during a certain period. Note that in New Jersey, a commitment must include a sales agreement and a completed appraisal. 

Looking for a Mortgage Lender?

If you are looking for a Mortgage Lender, give me a call (Michael Unis - 973-433-6845), and I am happy to make recommendations.