Pre-approval vs pre-qualification

Pre-approval vs pre-qualification

If you’re starting the home buying process,  it’s essential to start a discussion with a mortgage lender. They will ensure that you have all the necessary paperwork ready and have your financial ducks in a row to make a strong offer!  

One way to get the ball rolling in buying is to work with your lender on getting a Pre-Qualification Letter or Pre-Approval Letter. There are some advantages and disadvantages to both but, either way, getting one of these letters is an excellent step towards homeownership!

Below you’ll find a brief breakdown of Pre-Qualification vs. Pre-Approval and a step-by-step guide to how to get Pre-Approved!

Home Loan Pre-Qualification Letter vs. Pre-Approval Letter

A pre-qualification (or pre-qual) letter means that a loan officer has looked over your finances and has determined what you can afford. The lender will make a quick estimate based on your self-reported debt, assets, income, and credit history. This short calculation can give you (and the seller) an idea of how much you can borrow, pay per month, and your interest rate. 

No documentation is used to back-up the pre-qualification letter, so nothing is set in stone.  A pre-qual is basically the lender saying, “You may qualify for a mortgage based on all the numbers you provided for our company.” 

It is a rough estimate based on the numbers you provided. Obtaining a pre-qual letter will help you will know your target price range and what you can afford.

In contrast, a pre-approval letter is more in-depth and based on verified information.  Information such as your tax returns, bank statements, W2s, and pay stubs are used to generate this judgment.  Since these official documents are used as the basis for your estimate, pre-approvals tend to have more credibility in the market. 

A pre-approval letter can help speed-up your home buying process. It shows you are a serious and credible buyer who is working with a lender and is taking the right steps to get the ball rolling.

5 Steps to Get Pre-Approved for A Home Loan

  1. Contact a mortgage lender.
  2. Begin an initial mortgage application .
  3. Gather all your financial information for the last two years and submit to your mortgage broker –  you’ll need your tax returns, bank statements, W2s, and pay stubs.
  4. Submit any and all information to your lender to show proof of assets to prove you can cover the closing costs and down payment.
  5.    Authorize your lender to begin a credit check. Your credit score helps to determine your mortgage interest rate, home purchase price parameters, and down payment amount.

I Have a Pre-Qualification Letter, Now What?

All mortgage pre-qual and pre-approval letters have expiration dates.  It is critical to be mindful of these deadlines and keep things current if you are actively searching for a home.  It is also important to be cautious about how you handle your finances.  Even though you have a pre-qualification letter, your lender will still go over your numbers before clearing you for the final loan. If anything has significantly changed, your lender may adjust the terms.  Refer to my blog post about the 10 Mortgage Commandments to better understand how to make this process go smoothly.

LET'S CHAT

Ready to meet?

To schedule a showing or ask questions about buying or selling, please contact me using the form below.