Most people are not trained when it comes to the world of real estate and the terminology involved, which makes some of the language used tough to understand. So most people can easily get lost in all the fancy mumbo-jumbo that agents can throw around.
One important thing to remember: pre-qualification and pre-approval don’t mean the same thing. Some inexperienced agents can use these almost interchangeably but the difference between the two terms is great.
Pre-qualification means that the lender has provided an estimate of what the buyer can afford. This is based on the information received from the buyer such as income, assets, debt, and down payment. The lender will also provide an opinion of what the buyer’s potential is based on the information provided.
Pre-approval is defined as a commitment rending confirmation to receive a loan. What this means is that the lender has done more than have a conversation with the buyer and has, in addition, verified the buyer’s income, assets, debt, and down payment with a document review and a trimerge credit report. The lender will also provide an approval letter, which explains the conditions to be met as well as a finite mortgage amount. Furthermore, the buyer has already filled out a full loan application, paid the fee associated, and finished the necessary forms to complete the application. All that is needed to complete the process is a house to buy and a formal appraisal.
When you see sold signs come off, that usually means the buyer was only pre-qualified.