As you begin your new home search, two terms that you’ll hear often are “mortgage Pre-Qualification” and “mortgage pre-approval.” While these both have different meanings, they are often used interchangeably, which can lead to some confusion, especially if this is the first time you’ve purchased a home. You’ll want to know the similarities and differences between the two and which one you’ll want to have as you embark on your search.
Both pre-approval and pre-qualification have excellent benefits. Either will give you the general price of the homes you can afford so you can focus your search on properties that will fit into your budget. Both will send a message to the new home salesperson that you’re a serious buyer and that there is a high likelihood that you’ll be able to close on the home you’re considering. Some home builders will actually require a pre-approval or pre-qualification letter before they’ll bring the contract to their sales manager. So, if you’re going to need one of these things eventually, it may be best to get it out of the way early.
The biggest difference between pre-approval and prequalification is that pre-qualification doesn’t go into the depth that pre-approval does. With pre-qualification, a lender is simply trying to give you a broad set of price parameters on the home you can afford based on an overview of your financial history. You can supply this information yourself, and, in most cases, the lending institution won’t take the time to verify it. You can even get pre-qualified over the phone. Pre-approval is often the next step in the mortgage process but requires bank documents, pay stubs, other income documentation, and a credit check.
It’s important to know that neither the pre-approval nor pre-qualification guarantees that you will receive the loan. The actual mortgage loan process is more in-depth and thorough than the process for either pre-approval or pre-qualification, but it is a great first step on your way to getting the home of your dreams.
Getting pre-qualified or pre-approved will help get you on the track to new homeownership, keep your new home search in your budget, and let the home builder know you’re a serious buyer!