Because we are currently experiencing a major seller’s market in Chicago, it’s as important as ever for buyers to be educated and proactive. I recently ran into a difficult situation with buyers submitting an offer for one of my listings with only a pre-qualification, so today I am sharing the difference between pre-qualifications and pre-approvals.
Pre-qualification vs. Pre-approval
The main difference between getting pre-qualified and pre-approved is the amount of actual proof provided to the lender by the prospective buyer. For a pre-qualification, the information the lender requires is relatively lax, and buyers are able to estimate and provide answers to the best of their ability.
For a pre-approval on the other hand, lenders require documentation around income and assets, and the buyer’s social security number so that they can review credit. In light of the current market, I recommend that all my buyers go straight to a pre-approval whenever possible since most all sellers will require a pre-approval letter with an offer.
What is required
Generally speaking, lenders will require some combination of the following:
- Two most recent pay stubs
- Last few years of W2's, 1099's and Federal Income Tax Returns
- Most recent bank statement for checking, savings and money market (all pages)
- Most recent retirement and investments statements, i.e. 401k, IRA, mutual funds, stocks, bonds, CD's, life insurance
- If current home owners, most recent mortgage statement(s), property tax bill, insurance policy, and if a condo/town home, monthly assessment statement
Most lenders are able to complete the pre-approval process in about 24 hours, and they are usually good for about six months. The main take away for serious buyers: find a lender that you trust or give mine a call, and get pre-approved as soon as you can!