If you’re in the process of buying a new home, you’ve probably heard the mortgage terms “pre-qualification” and “pre-approval” tossed around. But what’s the difference? And which one should you get? In this blog post, we’ll break it down for you and help you decide which is right for you.
Pre-Qualification vs Pre-Approval
A pre-qualification is the first step in the mortgage pre-approval process. To be pre-qualified, you simply provide your lender with some basic information about your financial situation, including your income, debts, and assets.
Based on that information, your lender will give you a preliminary estimate of how much they’re willing to lend you and what interest rate you can expect to pay.
What is a mortgage pre-qualification?
A mortgage pre-qualification is an estimate of how much you might be able to borrow for a new home loan based on information you provide about your finances. It’s generally the first step in the homebuying process after you’ve looked at homes.
A pre-qualification is not an official promise from the bank or lender.
It’s only based on the overview of the information provided. The lender will later take a closer look at your financial health and history during the pre-approval stage. This means the loan amount could change depending on any discrepancies found.
What is a mortgage pre-approval?
A mortgage pre-approval, on the other hand, means that your lender has actually verified your financial information and approved you for a loan up to a certain amount.
With a pre-approval in hand, you’ll know exactly how much house you can afford and can shop with confidence knowing that you have the financing to back up your offer.
Which is better pre-approval or pre-qualification?
A mortgage pre-approval is better than a pre-qualification because it gives you an estimate of how much you can actually borrow, not just how much the lender thinks you can borrow.
- While a pre-qualification will indicate what price range you can afford.
- With a pre-approval, you’ll have a conditional commitment from your lender for a specific loan amount, allowing you to shop with confidence for your new home. It will give you leverage over other buyers and allow you to submit an offer with confidence.
Why do you need a pre-qualification letter?
A pre-qualification letter is not required, but it can be helpful in the homebuying process.
- If you’re not sure how much you can afford or if you have bad credit, a pre-qualification letter from your lender may help you get approved for a mortgage.
- It’s also a good idea to get a pre-qualification letter if you’re self-employed or have other financial circumstances that might make it difficult to get approved for a mortgage.
While a pre-qualification is not required, buyers who submit an offer with a pre-approval letter attached are often taken more seriously by sellers.
So if you’re ready to start shopping for your new home, be sure to get pre-approved for a mortgage first. It will make the process easier and give you peace of mind knowing that you have the financing in place.
Happy house hunting!