What’s the Difference Between Pre-qualified and Pre-approved?

What’s the Difference Between Pre-qualified and Pre-approved?

If you’re a first-time homebuyer, odds are you’ve thrown the words “pre-qualified” and “pre-approved” interchangeably. However, when it comes to home loans, there are some very important differences between the two.

For buyers hoping to purchase a home with a few missteps and misunderstandings as possible, it’s vital to understand the procedures involved in acquiring financing for a home.

Today, we’ll break down these two real estate jargon terms so that you can go into the mortgage approval process armed with the knowledge to help you succeed in securing a home loan.

Mortgage pre-qualification:

Let’s start with the easy part–mortgage pre-qualification. Getting pre-qualified helps borrowers find out what kind and what size mortgage they can likely secure financing for. It also helps lenders establish a relationship with potential customers, which is why you will often see so many ads for mortgage pre-qualification around the web.

Pre-qualification is a relatively simple process. You’ll be asked to provide an overview of your finances, which your lender will plug into a formula and then report back to you whether or not you’re likely to get approved based on your current circumstances.

The lender will ask you for general information about your income, assets, debt, and credit. You won’t need to provide exact documents for these things at this phase in the process, since you have not yet technically applied for a mortgage.

Pre-qualification exists to give you a broad picture of what you can expect. You can use this information to plan for the future, or you can seek out other lenders for a second opinion. But, before you start shopping for homes, you’ll want to make sure you’re pre-approved, not pre-qualified.

Mortgage pre-approval:

After you’ve pre-qualified, you can start thinking about pre-approval. If you’re serious about buying a home in the near future, getting pre-approved will simplify your buying process. It will also make sellers more likely to take you seriously, since you already have your financing partially secured.

Mortgage pre-approval requires you to provide the lender with income documentation. They will also perform a credit inquiry to receive your FICO score.

Mortgage applications and credit scores:

Before we talk about the rest of the pre-approval process, we need to address one common issue that buyers face when applying for a mortgage. There are two types of credit inquiries that lenders can perform to view your credit history–hard inquiries and soft inquiries.

A soft inquiry won’t affect your credit score. But a hard inquiry can lower your score by a few points for a period of 1 to 2 months. So, when getting pre-approved, you should expect your credit score to drop temporarily.

After pre-approval:

Once you’re pre-approved for a mortgage, you can safely begin looking at homes. If you decide to make an offer on a home and your offer is accepted, your pre-approval will make it easier to move forward in closing on the home.

Once the lender checks off on the house you’re making an offer on, they will send you a loan commitment letter, enabling you to move forward with closing on the home.

If I can help, please give me a call,

Sherryl Hennessey
Phone: 843-298-5219
[email protected]