While these terms are often interchanged, pre-qualification and pre-approval are two very different concepts. We’ll bring you up to speed and let you know how each can work for you.
Pre-qualified Loans
This is the first step for obtaining a mortgage, and it’s fairly easy. After choosing a lender, you supply the needed information (including debt, assets, and income), then wait for the provider to evaluate everything and get back to you. Note that this process is not in-depth because it’s done without an analysis of your credit history. The provider then gives you an estimate for an amount that you qualify for as well as some options for what’s best suited to your financial situation.
There’s no cost involved to get pre-qualified, and it goes pretty quickly. However this doesn’t mean that it’s a sure thing, it’s more of an expected number.
Pre-approved Loans
This includes a much more in-depth and complete look at your financial history and includes an official application. Unlike a pre-qualification, pre-approval includes a credit report. After the evaluation, the lender will be able to tell you more specifically the amount and interest rate you are approved for.
Usually there is an application fee in the pre-approval process, but it does give you an advantage. When you get a pre-approval by the time you’ve made an offer on a home, a seller knows that you’re closer to getting a mortgage than other potential buyers. This gets you ahead of the game!
The Advantages
Completing both of these steps helps you know how much home you can afford, preventing you from buying beyond your means. It also saves valuable time once you’ve picked out the perfect place since there’s no more guesswork about whether or not you can get financing.
The bottom line? Pre-qualification is great for determining what a lender can offer you. Pre-approval makes a stronger impression by letting sellers know you have the financial means to purchase.