The Difference Between a Pre-Approved Mortgage and a Pre-Qualification (and Why It Matters)

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As you embark on your home buying journey, you’ll likely come across the terms “pre-approved” and “pre-approved” as they relate to mortgages . While these phrases may seem interchangeable, they represent separate steps in the mortgage loan process, and understanding the difference between them can make your path to getting a mortgage much easier.

What is mortgage pre-qualification?

Pre-qualification is usually the first step in the mortgage lending process. It gives you a general idea of ​​how much you can borrow based on the basic financial information you provide to the lender. This process usually includes:

  1. Exchange basic financial details with the lender

  2. A quick overview of your financial situation

  3. Approximate loan amount you may qualify for

The prequalification process is usually quick and can often be completed online or over the phone. It’s important to note that pre-qualification does not involve a thorough review of your financial history or credit score.

What is a mortgage pre-approval?

On the other hand, pre-approval is a more stringent process in which the lender makes a conditional commitment to give you a certain amount of credit. The pre-approval process typically includes:

  1. Filling out a mortgage application

  2. Providing detailed financial documentation

  3. Thorough credit check

  4. Checking your income, assets and debts

After verifying this information, the lender will provide a pre-approval letter indicating the specific loan amount it is willing to offer if certain conditions are met.

Key Differences Between Pre-Qualification and Pre-Approval

Here are a few things that differentiate pre-approval from pre-qualification and why pre-approval is a more important control point to keep in mind:

  1. Depth of Financial Review : Pre-qualification involves a superficial review, while pre-approval requires a comprehensive review of your finances.

  2. Credit check : Pre-qualification usually does not require a credit check, whereas pre-approval does.

  3. Documentation : Pre-qualification often relies on self-reported information, while pre-approval requires extensive documentation.

  4. Accuracy : Pre-approval gives you a more accurate idea of ​​what you can afford and the terms you’re likely to get.

  5. Weight for Sellers : A pre-approval letter carries more weight for sellers because it demonstrates that you are a serious buyer who will likely be able to secure financing.

Why is this important

Understanding the difference between prequalification and preapproval is critical to setting realistic expectations. Pre-qualification gives you a ballpark figure, but pre-approval provides a more accurate budget for your home search. Additionally, in competitive markets, a pre-approval letter can make your offer more attractive to sellers. It can also simplify the buying process, as pre-approval can speed up the final loan approval process once you’ve found a home. Finally, the pre-approval process is the best time to identify any problems with your credit or financial performance early on, giving you time to resolve them.

The bottom line is that while pre-qualification can be a useful first step in understanding your potential creditworthiness, pre-approval is a more important milestone in the home buying process. By getting pre-approved, you can make a great offer on your home and move forward with confidence in your home buying journey.

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