Mortgages 101: Pre-Qualification vs. Pre-Approval – What’s the Difference?
Pre-Qualification vs. Pre-approvalThinking of buying a home? There are steps to take before you even step into a potential new home, such as evaluating your finances and choosing a lender. However, most people don’t know the difference between getting pre-qualified and getting pre-approved – and the difference is quite significant.
Whether you are buying your first, last or any one in between, home buying requires steps to determine what you can afford, how much of a payment you’re comfortable with, and how soon you want or need to move. Basically, pre-qualification is the process a lender uses to estimate how much you may be able to borrow. They require an accurate picture of your debts, assets, income, and credit rating. Pre-qualification can usually be done in person, over the phone, or online, depending on the lender. It will give you an idea of the price range you need to stay in, what your payment will be in that price range, and what interestPre-Qualify to learn what you can afford. rate to expect.
Pre-approval, in a nutshell, is the next level. This process requires more information, such as a current pay stub, last W-2 or 1099, credit report, bank statements and tax returns. Also, your lender may tell you not to make any major purchases during the home buying process, as it may change your pre-approval amount. Most people that have a stable financial picture and need to move quickly may simply skip the pre-qualification process and get pre-approved by their home lender.
PoPre-approval to see how much you can borrow.ssibly the biggest difference between pre-qualification and pre-approval is getting the home you want or getting beat out by another offer. Your lender can provide you a letter showing you are pre-approved to purchase a home up to a certain amount for you to share with your Realtor® and home sellers. Realtors® will often include this letter when presenting your offer on your new home, giving sellers the peace of mind knowing you can afford the home, and giving you an edge should you have to compete with other buyers.
For most people, a home is the single biggest purchase they’ll ever make, so it’s really important to know the difference between pre-qualification and pre-approval. Now that you’re informed, contact your lender to start the process in the way that suits your needs the best. As always, knowledge is power!
If you have questions or want to see about getting pre-qualified or pre-approved for a home loan, please contact Don Spears here or by calling (405) 615-8543.