When making an offer on a property, buyers who are financing their purchase usually need to provide the seller with documentation that gives confidence that they have the ability to get their financing approved. Typically this is either a prequalification or a preapproval letter from the lender. Do you know the difference?
The loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
The borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount with assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
So a preapproval requires closer scrutiny of the borrower by the lender than a prequalification and is a stronger statement of the buyer's ability to qualify for a loan. (Definitions courtesy of the NE FL Association of Realtors).