What’s the difference between pre-approval and pre-qualification?
Understanding Your Pre-approval
A pre-approved mortgage is a step in the mortgage buying process that can certainly help during the housing selection stage. A mortgage pre-approval is given by a mortgage lender, which states you are already approved for a mortgage even before honing in on a property. The process to get pre-approved requires you to fill out a loan application and provide the lender with income, asset, and any other specifically identified documentation necessary for the pre-approval. The lender will then pull your credit report to determine your creditworthiness. This will be the same process as a traditional mortgage application. Once you are pre-approved, you will be notified of the pre-approval and the amount of money you can borrow.
One of the biggest advantages of being pre-approved is knowing your budget ahead of time. You will be able to know exactly how much you are able to borrow. This allows you to weed out the houses that you know you won’t be able to afford, or even consider houses that might have seemed out of reach before.
In addition to knowing your budget and being able to narrow down your search that way, you also have a leg up over the people who are not pre-approved. Since you are pre-approved, you have much more negotiating power than someone who is not pre-approved. If you make an offer on a property, your offer will be placed in priority of others, even if the other offers are higher. Why? Because your offer has already been pre-approved and had your credit report and personal information reviewed by a lender.
Pre-approval vs Pre-qualification
Pre-approval is not the same thing as a pre-qualification. Pre-qualification is the first step in the mortgage process. During this step, you are giving a bank or lender an overall financial picture. This includes your income, assets, and debt. After evaluating your situation, the lender can give you an idea of what you qualify for. However, this is not a guarantee! This quick process is in place just to give you information on what you might expect if you get pre-approved.
Pre-approval can greatly help you on your home journey. Not only can it help you time-wise, letting you cut out houses that you know you won’t be able to afford, but it’ll help even more once you find the perfect house for you, putting your offer on top of the others.