Pre-Qualified or Pre-Approved What is the Difference?
Overview
If you’re looking to buy property, you’ve probably heard that you should get pre-qualified or pre-approved for a mortgage. These two are the key steps in the mortgage-application process. Pre-qualifying is the first step which gives you an idea of how much of a loan you’ll likely qualify for while pre-approval is the second step, a conditional commitment that actually grants you the mortgage.
According to a residential broker associate with Beverly-Hanks & Associates Realtors in downtown Asheville, NC, Todd Kaderabek, “The pre-qualification process is based on consumer-submitted data and the pre-approval is verified consumer data, such as a credit check.”
Some people use the terms interchangeably, but they’re not the same. In a competitive market, it is important to understand the difference between pre-qualified and pre-approved for landing your dream home and losing it to another buyer.
Pre-Qualified
Pre-qualified includes supplying a bank or lender with your overall financial picture such as your income, debt, and assets. The lender reviews everything and provides you with an estimate of how much you can expect to borrow. This process can be done over the phone or online and usually there’s no cost involved. This is a quick process that may usually take just one to three days for getting a pre-qualification letter.
Remember, that loan pre-qualification doesn’t include an analysis of your credit report or an in-depth look at your ability to purchase a home but it is solely based on the facts you hand over to the lender. This doesn’t mean much at all if you don’t provide accurate data.
The initial pre-qualification step allows you to discuss any goals or needs you have regarding your mortgage with your lender. Your lender can explain to you about various mortgage options and recommend the type which is best suited for your situation.
The pre-qualified amount is what you might expect to be approved for and it’s based only on the information provided by you. A pre-qualified buyer doesn’t have the same influence as a pre-approved buyer who has been more thoroughly investigated. “A pre-qualification letter is all but vital with an offer in our market. Sellers are smart and they don’t want to enter into a contract with a buyer who can’t perform on the contract. One of the first questions we ask a potential buyer is ‘Have you met with a lender and determined your pre-qualification status?’ If not, we advise options for lenders and we request and keep a copy of the pre-qualification letter.”
The pre-qualified benefits include:
- No fees
- No effect on credit score
- Good for first time home buyers
Pre-Approved
Pre-approved is the next step which is much more involved. As per Kaderabek, “Getting pre-qualified is a good indication of the ability to borrow and creditworthiness, but a pre-approval is the definitive word.”
This process involves completing an official mortgage application and supplying the lender with all the necessary documentation for performing an extensive check on your current credit rating and your financial background. The lender will review your finances to get you pre-approved for a mortgage up to a specified amount. Additionally, you’ll have a better idea of the interest rate that you’ll be charged on the loan at this point as this is usually based in part on your credit score. Some lenders charge an application fee for pre-approval that can amount to several hundred dollars.
The pre-approved benefits include:
- Helps you know exactly what you can afford
- Gives you negotiation power
- Allows you to close faster
The Bottom Line
Getting pre-qualified makes more sense to you if you are new to home buying and not sure whether you can support a mortgage or if you’re not just ready to buy yet. Pre-qualification doesn’t affect your credit score, so it’s a good way to start if you’re just browsing. If you are serious about buying a house, then you should get pre-approved right away. Primary Residential Mortgage, Inc., in Fort Myers and Naples, brings you one step closer to achieving the American Dream. We’ll help you evaluate your mortgage options. Get in touch Contact Us with us for a complimentary consultation. Our loan experts will help get you the mortgage program that is ideal for your financial situation.
PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Florida Office of Financial Regulation MLD646. Opinions expressed are solely my own and do not express the views of my employer.