WHAT’S THE DIFFERENCE?
Pre-Qualified vs Pre-Approved: An Overview
To purchase a property buyers need to pre-qualify or be pre-approved for a mortgage. Some people use the terms interchangeably. But there are important differences. Pre-qualifying is just the first step because It gives you an idea of how large a loan you will likely qualify for. Pre-approval is the second step, a conditional commitment to actually grant you the mortgage.
Pre-Qualified
Getting pre-qualified involves supplying a bank or lender with their overall financial picture, including debt, income and assets. The lender will review your finances and give you an estimate of how much the you can expect to receive.
Pre-qualification is quick. It can be done via phone or online and there is no cost. It does not include an analysis of credit reports or an in-depth look at the borrower’s ability to purchase a home.
Pre-Approved
Getting pre-approved is the next step It is more involved. The borrower completes an official mortgage application. An extensive credit and financial background check will then be performed by the lender. Then a conditional written commitment for an exact loan amount is prepared. This will allow the borrowers to look for homes at or below that price level.
The borrower gives the lender a copy of the purchase agreement and any other documentation needed for the underwriting process after a home has been chosen. A licensed contractor will do an appraisal to determine the home’s value.
Bottom Line
Getting pre-qualified and pre-approved for a mortgage gives homebuyers a good idea in advance of how much house they can afford. Most sellers will be more willing to negotiate with those who are pre-approved.