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Pre-qual vs pre-approval - know the difference

Pre-qualification is when the loan officer takes the basic asset, income and debt information and determines how much of a loan the borrower qualifies for. Often this can be a simple calculation on your financial calculator. The originator may or may not pull credit for this. However, any professional would. Even if credit is pulled, at this stage there is no commitment from the lender and the "answer" is really tentative.  

Pre-approval is when a loan officer takes a full application and determines which programs the borrower qualifies for and then is able to obtain some form of "approval." For example, in the standard Fannie Mae or Freddie Mac programs, you can run the borrower information through an automated system. The system then gives an approval level with conditions which need to be fulfilled. This oftentimes will mean employment, income, asset verification etc.

Not all programs have an automated system. However, a seasoned loan originator or someone who really does their homework will plow through the loan guidelines and look for any problems with getting the loan approved. It takes a lot more work, but such a manual review usually catches most things.

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  • Last edited August 16 2007
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