Getting a mortgage can be both intimidating and exhilarating. After all, it’s the first step towards buying your dream home and becoming a home owner.
There are many steps towards getting a mortgage, and completing each step can make the process go quicker and with few problems.
Being pre-qualified and/or pre-approved for a mortgage loan can be quite helpful. While these two terms are often used interchangeably, they are two different things. Here is the difference between being pre-qualified and pre-approved.
What Does Being Pre-Qualified Mean?
Being pre-qualified for a mortgage loan means the lender will probably give you a mortgage loan based on the information you have provided.
On your initial visit to the lender, you’ll be asked to fill out an application and provide certain personal information. Based on this preliminary information the lender may or may not pre-qualify you for a mortgage loan.
It’s important to understand being pre-qualified does not mean you will get the loan. It just gives you an idea of if you may be approved for a loan.
What Does Being Pre-Approved Mean?
Although being pre-approved is not a 100% guarantee you’ll get a mortgage loan, it’s about as close to getting the loan as you can get.
The lender will typically write you a pre-approval letter to show to sellers or real estate agents indicating that you are not only approved for a loan but also how much you’ll be approved for.
Unlike the pre-qualification process which is based on preliminary information, the pre-approval process takes place after the lender has verified the preliminary information you provided and obtained a copy of your credit scores.
About the only factor that could affect being pre-approved at this point is the home appraisal. If the selling price is much higher than the appraisal value, you may not get pre-approved.
What are the Steps towards Being Pre-Qualified?
The first step towards buying a home is choosing a lender and paying that lender a visit.
The lender will have you fill out an application and provide personal information such as income, employment and any debts you may have.
Based on this information, the lender will give you a general idea of the probability of you getting a loan.
What are the Steps towards Being Pre-Approved?
The steps towards being pre-approved are very similar to the pre-qualification process, with the difference being that the lender has now verified your information. The lender has verified your employment, income, debt-to-income ratio and obtained a copy of your credit report.
This information tells the lender if you can afford a mortgage, how much you can afford to borrow. If the lender pre-approves you, the lender will write a letter indicating this.
Sellers who see that potential buyers have a pre-qualification or pre-approval letter know that the buyer is serious about buying a home.
While they are both looked upon favorably, the pre-approval letter carries a little more weight because it generally indicates a dollar amount of which you were approved.
This can save both you and the real estate agent a lot of time because they’ll be able to narrow down the search and stay within the approval limits set by the lender when showing you homes.