So you’re on the hunt for a new home. What should you do first? You’ve heard you should get pre-approved or pre-qualified, but which is it? Is there a difference? If you’ve ever been confused by the two, you’re not alone. Many people are under the assumption that the two options are the same, but, in fact, there are major differences between the two. Here’s the breakdown…
Getting pre-qualified is actually the first step in the mortgage process and is generally pretty simple. You provide a lender with your overall financial picture, including your debt, income and assets. You can do this in person, over the phone or even on the internet. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify.
Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. The review is solely based on the information you provided to the lender. This means your pre-qualified amount is not a sure thing and it may not be an amount you can actually afford. It’s simply the amount for which you might expect to be approved.
Getting pre-approved is the next step in the process and tends to be much more detailed and accurate. To get pre-approved, you need to complete an official mortgage application with your lender. Your mortgage lender will then run your credit report to assess your current debt-to-income status, which is a key difference from a pre-qualification.
Once all the pre-approval steps are completed, your lender will provide you with a pre-approval letter, which includes a conditional commitment for an exact loan amount, allowing you to confidently look for a home at or below that price level. Not only will you know how much you can comfortably afford, this letter will also put you at an advantage when dealing with a potential seller, as he or she will know your offer is serious.
Start Your House Hunt Right
In short, just because you are pre-qualified for a mortgage doesn’t mean you will actually get one. It’s important to pursue the next step to obtain pre-approval, which will significantly improve your chances for a green light from a lender. To protect your pre-approval and keep your loan on track through closing, it’s important not to make any big changes or decisions that could impact your financial background.
Before you begin your house hunt, make sure you contact a loan advisor to get pre-approved! It’s worth the time spent up front to ensure you are targeting a realistic price range, and when the time comes to make an offer, a pre-approval letter can set you apart from competing buyers.