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What is the Difference Between Pre-qualification and Pre-approval
One of the first steps our real estate agents recommend when you decide to start shopping for a home is to get pre-qualified or pre-approved for a mortgage. While many people use these terms interchangeably, they are different and depending on your situation you might choose one over the other. Here's what you need to know.
What They Have in Common
Both pre-qualification and pre-approval refer to a statement in writing from a lender that they are willing to finance your home purchase. Either or both will happen before you start looking at homes. However, neither is a complete guarantee that you'll be approved and a lender can still turn you down for a mortgage up until you've actually received final approval.
Pre-qualification
Most people wait until they are actually ready to buy, but getting pre-qualified can happen early on in the home-buying process. It's a good idea to start here if you're not sure how your financial situation will impact the home buying process or if you think you may need to make improvements to your credit. Pre-qualification is a basic review based on your monthly income and debt. A pre-qualification means that based the lender's initial evaluation, you'll probably be eligible for a mortgage of a certain amount. This evaluation is based on the information you provide to the lender about your monthly finances. It doesn't consider your credit report or history, verify stable employment and other information, or scrutinize your financial situation. Often, you don't even have to meet with a lender in person. Pre-qualification can be helpful if you aren't sure how much or what kinds of mortgages might be available to you.
Pre-approval
You can start with a pre-approval or get pre-qualified first, then move on to a pre-approval once you're completely ready to buy. Pre-approval requires you to actually start the mortgage application process. You may be charged a fee to cover pulling your credit report and the letter from your lender will state that you are pre-approved for a specific amount. Your lender's underwriting department will verify all your financial information such as your assets and salary, verify your employment and personal information, look at your bank statements and pay stubs, obtain your credit report and do a detailed review of your finances.
A pre-approval means you've gotten the financial details out of the way, all that is left is to find a suitable property. In a hot market, a pre-approval can give you an advantage, since it is the next best thing to paying cash. Since you've already started the application process, it shows you're a serious buyer and sellers know the chances of your financing falling through after this point are slim. Unless your financial situation changes significantly for the worse, or the appraisal comes in low, you're good!
A pre-qualification or pre-approval is an essential first step and both will give sellers the confidence that your offer is the one they'll want. Contact Wagner Realty and get started on your home buying journey today!
