15 Jul Pre-Qualification vs. Pre-Approval: Which One Do You Need?
The Benefits of and Differences Between Pre-Qualification and Pre-Approval for a Mortgage
The terms pre-qualification and pre-approval can confuse homebuyers, especially because lenders will occasionally use the terms interchangeably, despite the fact that they are in fact different steps in the process of obtaining a mortgage. Knowing the difference between pre-qualification and pre-approval is important, because it can help you through the process of obtaining a mortgage and applying for a home.
What is Pre-Qualification?
Generally, pre-qualification is the step before pre-approval. During this step of the process, you’ll supply your lender with an overview of your financial history. This typically includes income, debts and assets. After the lender has reviewed this information, they will give you an estimate of how much of a mortgage you qualify for. Lenders typically do not include credit reports or a detailed look at your ability to purchase a home when you’re getting pre-qualified. This step in the process of obtaining a mortgage is a great time to discuss your wants and needs regarding a mortgage with your lender. Additionally, it’s important to keep in mind that the amount your lender says you pre-qualify for is an estimate and is not guaranteed.
What is Pre-Approval?
Typically, pre-approval is more detailed than pre-qualification. This step of the process requires that you complete an official mortgage application and provide your lender with a detailed overview of your financial history that includes a credit report. From this information, your lender will tell you which mortgage or mortgages you are approved for, and you’ll have a better idea of what interest rate you’ll have to pay. Pre-approval gives you a clear idea of what your budget for a house will look like, as you’ll receive a conditional commitment in writing for an exact mortgage amount. This puts you at an advantage with the home seller, as they will know you are committed to buying the home and have already begun the process of obtaining a mortgage.
What are the Benefits of Pre-Qualification and Pre-Approval?
You should get pre-qualified and pre-approved prior to looking for a home, because completing both of these steps of the process will give you a relatively accurate idea of your price range. When you get both pre-qualified and pre-approved before you being searching for a home, you won’t have to guess or look at properties that are either dissatisfactory or outside of your price range. Additionally, it will save you time when you’re ready to make an offer on a house, as it will not be contingent on financing.
Should I Get Pre-Qualified or Pre-Approved?
We recommend that homebuyers obtain both pre-qualification and pre-approval, because it sets them apart from other homebuyers and gives them a reliable price range for potential homes.
Ultimately, both pre-qualification and pre-approval are important steps in the process of obtaining a mortgage, making an offer on a home and finding your perfect house. Knowing the details and benefits of these steps allows homebuyers to navigate the process of financing and purchasing a home more easily.