Pre-Qualification vs. Pre-Approval. Know the difference.

Understanding the difference between getting pre-qualified and pre-approved for a mortgage loan is crucial in the home buying process. Here’s an explanation:

Pre-Qualification: is the initial step in the mortgage process. It’s a quick assessment where you provide a lender with your overall financial picture, including your debt, income, and assets. The lender will review this information and give you an estimate of how much you might be able to borrow. This step doesn’t include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s often done over the phone or online. Pre-qualification can be done quickly, and it’s useful as a general indication of your borrowing capacity, which can help guide your home search.

Pre-Approval: is a more involved process. You’ll complete an official mortgage application, and then supply the lender with the all-necessary documentation to perform an extensive check on your financial background and current credit rating. The lender will then offer you a specific loan amount based on current interest rates. The pre-approval is typically good for a set period, such as 30 to 60 days. Having a pre-approval gives you a conditional commitment from a lender for a specific loan amount and is a powerful tool when making an offer on a house, as it shows sellers that you’re serious and have the financial backing to follow through on your offer.

In summary, pre-qualification is like a quick snapshot of where you stand financially, while pre-approval is a more detailed and formal evaluation of your creditworthiness and ability to purchase a home. Both are helpful steps in the home buying process, but pre-approval carries more weight when you’re ready to make an offer on a property.