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2020-08-04
Understanding the Difference between Pre-Qualified and Pre-Approved for a Mortgage Loan


One of the biggest misconceptions when buying a home, especially for the first time, is that you need to get pre-qualified before you start looking.  While this is partly a true thought, what is most important is getting pre-approved.  While many buyers are under the notion that getting pre-qualified and pre-approved are of the same terminology, they are actually quite different in the scheme of getting an accepted offer on a home.  This is especially true in a seller’s market, which is exactly what the current climate of the market it currently.  While getting pre-qualified is a first step many buyers can take in the home purchasing journey, it should be stressed that before you begin looking for your next dream home, you should absolutely be pre-approved.  Here are the big differences between the two:

 

Pre-qualified

Getting pre-qualified for a loan is one of the easiest steps in the home buying process.  What’s especially convenient about this step, especially in todays climate, is you can do this from the comfort of your own home.  To find an application you can research almost any bank or credit union website and fill it out online.  Once filled out, you’ll receive notification almost immediately letting you know the amount that you’ve been pre-qualified for.  Although it is essential to also get a pre-approval, this is a wonderful first step (especially for those who are buying for the first time) to get a ball-park estimate of the price range you should be searching in.           

Make sure to have this information readily available for your pre-qualification application:

  • All current assets
  • Total income
  • Any current debt in your household

The bank will be able to process your application and decide an amount once they have received all of this information.  It’s important to remember that this information is all unverified so the amount you’ll be approved for is subject to change.  However, there are still many benefits to get pre-qualified!  For starters, it won’t cost you anything and will never have a negative impact on your credit score.  And, like we previously mentioned, it is a great starting point to get an estimate on what you’re able to afford. 

 

Pre-approved

While pre-qualification is a beneficial step to beginning your home search, what is absolutely necessary is getting pre-approved.  In today’s seller’s market, it’s crucial that this is done before you even think about putting an offer in on a home.  What exactly does pre-approval mean?  Simply put, it means that you have legally been approved to spend a specific amount on the purchase of a home.  Thankfully, this step can also be done online or over the phone.  Once you are approved, a lender will send you the documents that state how much you’ve been allocated to spend along with your potential interest rate (interest rates are constantly changing so this is just an estimate).  The lender will require physical documentation of the following for your pre-approval:

  • Income
  • Current employment status
  • Any outstanding debts
  • Credit history
  • All assets
  • The estimated amount for a down payment

This is a free process and is vital for getting any kind of accepted offer on a home.  Again, in today’s market, sellers won’t even consider an offer unless the buyer can show that they have been pre-approved for that amount.  If you are only pre-qualified, you can bet that you’re offer will never be taken seriously.  It is also beneficial to know exactly how much you can afford in order to narrow down your search!  It will also make the close proceed much faster and with less likelihood of complications arising last minute. 

 

Is there an option better suited for you?

There might be certain reasons why one option is more beneficial than the other for your individual circumstance.  When deciding which step is necessary, consider the following:

  • If you are interested in purchasing a home but you haven’t decided if it is the right time for you, getting pre-qualified might be the best route for you.  Pre-approval amounts are only valid for 90 days, so you have to act fast once receiving your documentation.  They also affect your credit score, so it isn’t in your best interest to get pre-approved until you are certain you’ll be wanting to put an offer on a home soon. 
  • If you are without a doubt committed to purchasing a home in the next 90 days then pre-approval is absolutely the best choice for you!  Again, you will never be taken seriously by a seller in the current market unless your offer comes with an official pre-approval.  If you are worried about the effect on your credit score, don’t be.  It is a one-time hit that will only be about 5 points and the benefits of this process far outweigh the negatives. 

 

In today’s market, sellers are often accepting offers the first day that their home is on the market so make sure to get your pre-approval ready as soon as you start your search!  You don’t want to lose out on your dream home because another offer was approved whereas yours was only qualified.  Congratulations on starting your home-buying journey!

 

 Check my website and follow me on Facebook for more answers to your home buying questions!

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