Pre-qualified or Pre-approved

 Barenberg & Roth, LLP, Barristers & Solicitors

Have you ever been advised by clients looking to purchase a house that there is no need to put a financing condition in the Offer to   Purchase because the client indicates that they have been pre-approved? 

Does the client  know the difference between pre-qualified and pre-approved?  Often, they are confused as to the difference.

Pre-qualification simply means that on the face of it a lender believes that a borrower will qualify for a loan on certain terms based on representations made by the borrower as to income and debt.  It is simply an opinion rather than a commitment.

Pre-approval usually means that the lender has provided the borrower with a letter or certificate indicating that the borrower’s employment income and credit worthiness has been verified and the borrower is prepared to lend on certain terms.  However, pre-approval does not necessarily bind a lender as there could be other conditions attached to the pre-approval such as an appraisal.

Every lender’s  pre-approval letter or certificate is the lender’s own custom form.  Even a so-called pre-approval could contain fine print that the approval is subject to a credit check or other conditions.

If I am preparing an offer and my client does not want a financing condition, I always recommend that I review the “pre-approval”   letter to see if there are any such conditions.  It is a regular occurrence that clients advise me that they are pre-approved but they do not have anything in writing from the lender.