Cape Cod Home Buyers: Are You Pre-qualified or Pre-approved?

Cape Cod Home Buyers: Are You Pre-qualified or Pre-approved?

What might sound like a simple issue of semantics is, in actuality, the difference between knowing you can buy that Cape Cod home you’ve always dreamed of or assuming you can make the purchase. The terms “pre-approval” and “pre-qualification” are often used interchangeably, but buyers—and the sellers with whom they may enter into a contractual agreement—should understand the practical differences.

Individual circumstances or lending practices will vary, but in general terms, the following is a definition of each designation.


Often the first step in estimating a buyer’s potential purchasing power, a pre-qualification letter is just that: an estimate of a buyers’ ability to obtain a mortgage. The pre-qualification process is simple, often taking place without a face-to-face meeting with a lender, a few basic questions over the phone. The mortgage originator will ask about the prospective buyer’s annual income, the amount of cash or securities available for a down payment, a current address and number of years living there, as well as a social security number and permission to order a credit report. Based on this verbal information and the results of the credit report, a pre-qualification letter may be issued, often on the same day.

A pre-qualification letter will come with many disclaimers, the gist of which are that any and all information provided during that initial conversation must be verified. In addition, the buyer–and the eventually chosen property–must meet the criteria of any lending package, i.e. loan-to-value, verification of income and assets, work and credit histories and more. There is a myriad of circumstances that can undermine the validity of a buyer’s ability to obtain a mortgage, even a “pre-qualified” buyer.


Taking a huge step forward in the mortgage application process, a buyer may chose to become preapproved. In most cases, a lender will require extensive documentation before providing a pre-approval letter to a buyer. Your loan officer will request employment and income verification in the form of tax return, W2s, 1099s, and/or paystubs; bank statements; proof of additional assets that may be a source of your down payment; charge card statements; and a potential plethora of other financial data.

The preapproval letter issued to a buyer may also have disclaimers, further criteria to be met to assure the final mortgage can be secured. Home inspections, appraisals, change in employment status or credit rating–these and other factors will all be scrutinized and must fit the underwriting criteria of the buyer’s individual loan package. However, a buyer who has undergone the process of preapproval versus prequalification is that much further along in the mortgage application process and more likely to proceed to the closing table without complications.

Sellers are likely to look more favorably upon a preapproved buyer. Just as every Cape Cod homebuyer is a unique individual, every mortgage is an exclusive transaction. If you are serious about purchasing a Cape Cod property, it pays to do the upfront work necessary to obtain that all-important “preapproval.”

Steele Associates is not affiliated with any lender. Be sure to consult with a loan officer with regard to actually policies and procedures that apply to your specific lending package.