Definition of Pre-Approval
What does the term "pre-approval" mean as it applies to the world of real estate? What is the definition of the term "pre-approval"?
"Pre-approval" occurs when a lender guarantees that a potential borrower will be able to borrow a certain amount of money.
"Pre-approval" and "pre-qualification" are two different things. Many people who think that they have "pre-approvals" actually have "pre-qualifications" - there is a big difference.
With a "pre-qualification", a lender will check a borrower's credit history and income levels and "pre-qualify" them for a loan. For instance, a bank may say to a potential borrower, "based on the information that you have provided, you have pre-qualified for a mortgage of up to $500,000". Borrowers can use this information to go and try to locate a house that they would be interested in buying. Some borrowers will even take "pre-qualification" letters from their banks to try and gain an edge on other buyers.
The difference between "pre-approvals" and "pre-qualifications"? A "pre-qualification" is NOT a guarantee that a lender will actually lend you that money. For instance, if you offer $500,000 for a home that has been appraised at $225,000, a bank is very likely not going to grant you a mortgage. After all, you are taking out a secured loan (the house is the collateral), and the lender has to be satisfied that they could get their money back if you defaulted on the loan.
Davemanuel.com Articles That Mention Pre-Approval:
Click Here For Hundreds More Definitions