Buying a home is one of the greatest investments you’ll likely make in your life, so it’s important to be prepared prior to jumping into the housing market. In fact, according to various industry experts, understanding even the most basic mortgage terms can save you tons of time in the long-run as you move through the stages of the home buying process.
One of the most common and disastrous mistakes first-time homebuyers make is confusing the terms “pre-qualified” and “pre-approved”. Although the terms may sound similar, their definitions and purposes in the mortgage process are completely different. Here’s what you need to know about the two:
Getting pre-qualified is for borrowers who are looking for pre-qualification and/or credit review without actually applying for a mortgage. The process begins when a customer moves beyond the inquiry phase and makes a request to the lender to pre-qualify them. This may include a review of the borrower’s credit score or an evaluation of whether the borrower would meet general loan qualifying requirements. Unlike the pre-approval process, pre-qualification is based solely on the verbal information given to the lender and does not require a mortgage application.
The pre-approval process is for borrowers who are ready to apply for a mortgage but may or may not have identified a property. Typically, the borrower will submit documents detailing their financial background and credit score, as well as a mortgage application. In some cases, however, the information may be submitted verbally. With this information, the lender completes a comprehensive analysis of the borrower’s creditworthiness and provides a statement of approval, with or without conditions, to extend credit up to a designated loan amount for a specified period of time.
By completing both of these steps prior to jumping into the housing market, you’ll have a serious advantage over the rest of the competition. You will not only know what you can afford, but also prove to the seller that you can afford it when you finally make an offer on a home. If you’re still asking yourself “what’s the difference between pre-qualified and pre-approved?” contact one of our mortgage specialists today.