With escalating real estate prices, most prospective buyers have their concerns when it comes to mortgages. You may have heard terms like getting pre-qualified for a mortgage or getting pre-approved for a mortgage. The first thing worth knowing is the fact that both don’t mean the same. If you are wondering how to get pre-qualified to buy a home, we have a detailed post that will explain the basics.
For the uninitiated, pre-qualification is a situation where the prospective home buyer shares details of their finances, income, debts to a lender, who then provides a possible loan amount that the person can get. In this case, the focus is not on verifying financial information or checking the credit reports. To be more precise, pre-qualification is the first step towards getting a mortgage, so that one can understand the budget for the house.
As for pre-approval, it is all about filling up all the details, offering the SSN, following which lender will pull up the credit background of the applicant to consider them application for the mortgage. In case of pre-approval, the focus is not just about an estimate, but if the borrower is credit-worthy in the first place. Getting pre-approved is basically the foremost critical aspect that determines if you can get the mortgage in the first place.
Are the differences important?
In all fairness, both pre-approval and pre-qualification is used interchangeably in the real world, as far as applicants are concerned, many of them don’t really bother about the differences. With that said, lenders do distinguish between both, and many have different definitions for both. In essence, Pre-qualification is the first step, which is followed by pre-approval. Pre-qualification just allows the borrower to consider the option of a mortgage, because the lender offers a fair idea if they can aim for the home they have in mind. To be more precise, you don’t need a lot of documentation for Pre-qualification, and it is not a must either.
On the other hand, pre-approval is also the same thing or at least similar, but papers, documents and supporting evidences must be submitted, and the lender in this case will do everything to verify if you can repay the loan. For that, they will check your creditworthiness and debt to income ratio in detail.
This brings us to the final question – Which one should you opt for: “pre-approval” and “pre-qualification”? To be fair, it depends on the lender, and different local estate markets work in a different way, and lenders may think of “pre-approval” and “pre-qualification” differently. Pre-qualification is more critical as you can guess, because a credit check is must in this regard. You may have to do some research to understand which one matters in your real estate industry. Consider taking help from a real estate agent if you want to know the aspects of getting a mortgage, and they can even connect you to lenders. Getting pre-qualifed for a mortgage is necessary, especially when you are keen on getting the house.