As you begin the house hunting process and start comparing your loan options, you may hear the terms “pre-approval” and “pre-qualification” frequently. It can be a simple misunderstanding to use these two terms interchangeably, but they actually have different meanings and learning about their differences can be helpful during the mortgage application process.
Mortgage pre-qualification
Pre-qualification gives borrowers a general idea of how much they will be eligible to borrow when taking out a mortgage. Lenders generally take several financial factors into consideration, such as credit history, income, debt, assets, and other important details. A credit check may also be done to provide a more accurate estimate for a pre-qualification. If you’re a first-time homebuyer and new to the process of applying for a mortgage, this can be a good first step to take, as it will typically give you an idea of where you stand. It can also be a good step to take if you’re not quite ready to apply for a mortgage just yet because you’re in the very early stages of house hunting and just want to see where you stand. Getting pre-qualified is generally an easy process that can typically be done over the phone or online.
Mortgage pre-approval
Getting pre-approved holds more weight than getting pre-qualified, and it is typically the next step after a pre-qualification, although borrowers do have the option of just skipping pre-qualification and going straight to a pre-approval. The process is a little more involved, because it gives borrowers a more accurate estimate as to what they are eligible to borrow. A pre-approval letter will include specific terms, as well as the exact amount you’ve been pre-approved to borrow, which is a must-have in today’s competitive housing market. With a pre-approval from a lender, it shows sellers that you’re at a serious point in the house hunting process.
The pre-approval process requires proof of income, debts, assets, and employment. Borrowers must supply various documents, such as current pay stubs, W-2s, and other important paperwork. Lenders will also run a credit check as part of the pre-approval process.
Deciding which one to get
If you aren’t ready to get your credit checked yet, and you’re not quite ready to officially apply for a mortgage or begin looking for houses, pre-qualification can be sufficient. This can give you a realistic indication as to what you’ll qualify for and can help you determine what type of home to begin searching for, what areas to look in, and so on. It may also help you decide whether now is the right time to purchase a home, or if you need to wait. For example, some people decide after their initial pre-qualification that they want to save up more and/or pay off debt so that they can qualify for the amount they want.
If you’re at a serious part of the house hunting process: as in, you have your eye on a specific property or you’re ready to make an offer if the right home comes along, you’ll want to get a pre-approval. Pre-approval holds more credibility during the house hunting process, and it is often a requirement when it comes to officially making an offer on a home.
Other considerations
Some borrowers will choose to get a pre-qualification early on in the process, and then get their pre-approval when they are closer to purchasing a home. While completing both steps can be helpful and informative, it is also not required; homebuyers can also go straight to getting pre-approved, if they prefer.
Once a borrower is pre-approved for a mortgage, they will receive a letter from the lender that documents the amount, terms, and other important information. This document is beneficial to have before you even begin the house hunting process, and it is usually submitted along with your offer once you find a home you want to purchase.
Get pre-qualified or pre-approved today
Are you ready to get started on the mortgage application process? Get pre-qualified or pre-approved for your mortgage by contacting Filo Mortgage. We can help you decide which step to take based on where you’re at in the house hunting process, and can also answer any other questions you may have about pre-qualification and pre-approval. Contact us today!
