When you’re starting the home-buying process, you’ll likely encounter two terms: mortgage pre-qualification and pre-approval. They may sound similar, but they represent different levels of commitment from lenders. Understanding these terms can help streamline your home buying process.
- Understand What a Mortgage Pre-Qualification Is
A mortgage pre-qualification is an estimate of how much a lender may be willing to lend you based on a brief review of your finances. This is a general first step that can help you determine what you might afford.
- How to Get Pre-Qualified
To get pre-qualified, you’ll need to provide a lender or mortgage broker with information about your income, assets, debts, and credit score. This is usually a self-reported process and doesn’t require the lender to pull your credit report.
- Understand the Limitations of Pre-Qualification
A pre-qualification does not guarantee that you’ll get the mortgage, as it’s based on the information you provided, which has not been verified by the lender.
- Understand What a Mortgage Pre-Approval Is
A mortgage pre-approval is a more formal process where a lender evaluates your creditworthiness and confirms how much they’re willing to lend you. This gives you a clearer picture of your home purchasing budget and signals to sellers that you’re a serious buyer.
- How to Get Pre-Approved
For a pre-approval, you’ll fill out a mortgage application and provide the lender with necessary documentation, such as proof of income, tax returns, employment verification, and information about your debts and assets. The lender will also run a credit check.
- Understand the Benefits of Pre-Approval
A pre-approval can make you more attractive to sellers because it shows that a lender has already vetted your financial situation and is willing to back your mortgage loan. It also gives you a clearer idea of what you can afford, allowing you to house hunt more effectively.
- Know the Differences
The primary difference between pre-qualification and pre-approval is the level of scrutiny by the lender. Pre-qualification is an informal process based on self-reported information, while pre-approval involves a detailed review of your financial situation and typically requires a credit check.
- Decide Which is Right for You
If you’re just starting to think about buying a home and want to get a rough idea of what you might be able to afford, a pre-qualification may be sufficient. If you’re ready to start seriously house hunting and want to stand out to sellers, a pre-approval would be more beneficial.
- Keep in Mind That Neither Is a Guarantee
Both pre-approval and pre-qualification are conditional. Factors like changes in your financial situation, interest rate changes, or issues with the property can affect the final mortgage approval.
- Work with a Mortgage Broker
Working with a mortgage broker like Shelto can help simplify the process of getting pre-qualified or pre-approved. They can guide you through the process, help you gather necessary documentation, and work with lenders on your behalf.
In conclusion, while pre-qualification and pre-approval might seem interchangeable, they represent different levels of commitment from lenders. Understanding the difference can help you manage your expectations and strategy when buying a home. At Shelto, our experts are always ready to help you navigate these processes and secure the best mortgage for your needs.