Finance
What is 'pre-qualification' versus 'pre-approval' for a Hawaii mortgage and why does the distinction matter?
AA. They are identical; the terms can be used interchangeably
BB. Pre-qualification is an informal estimate based on self-reported information; pre-approval involves verification of income, assets, and credit—pre-approval is stronger and more credible to Hawaii sellers✓ Correct
CC. Pre-qualification requires lender verification; pre-approval is just an estimate
DD. Only pre-qualification is accepted by Hawaii sellers; pre-approval is a mainland concept
Explanation
Pre-qualification estimates what a borrower might qualify for based on self-reported information without verification. Pre-approval involves the lender verifying income, assets, employment, and credit—the lender commits to lending a specific amount contingent on property appraisal.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
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