FinanceIntermediateArizona Exam

In Arizona, a lender's 'pre-qualification' differs from 'pre-approval' in that:

APre-qualification requires a hard credit inquiry and full income documentation; pre-approval is an informal estimate that does not affect the buyer's credit score

BPre-qualification is an informal estimate based on unverified information; pre-approval involves verified documentation and underwriting reviewCorrect

CBoth involve a full credit check and income verification; the difference is only that pre-approval is issued by underwriting rather than by a loan officer

DPre-qualification is a guaranteed lending commitment up to a stated amount; pre-approval is a conditional commitment subject to property and appraisal review

Why Pre-qualification is an informal estimate based on unverified information; pre-approval involves verified documentation and underwriting review Is Correct

Answer B: Pre-qualification is an informal estimate based on unverified information; pre-approval involves verified documentation and underwriting review

Pre-qualification is a quick, informal assessment based on self-reported information, providing an estimate of borrowing capacity. Pre-approval involves submitting documentation (pay stubs, tax returns, bank statements) for verified underwriting—much stronger evidence of loan approval.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

Key Finance Terms in This Question

Pre-Approval

A lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

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Key Terms to Know

Pre-Approval

A lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.

Debt-to-Income Ratio (DTI)

A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

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