What’s the Difference? Pre-Qualified vs. Pre-Approved
The mortgage approval process can be filled with terms, rules, and regulations that may be confusing to homebuyers. That’s why, at GoPrime, we take pride in helping homebuyers understand the mortgage process from start to finish.
You’ve probably heard that it’s important for homebuyers to become pre-qualified or pre-approved when searching for property – however, do you know the difference between these two terms?
Let’s take an in-depth look at both terms, as each one represents a key step in the mortgage application process. While some people tend to use the terms interchangeably, there are important differences between the two.
According to experts at Investopedia, pre-qualification involves “supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow.” The process may be completed either online or over the phone at typically no cost to the homebuyer. Furthermore, it’s a quick process, usually taking only one to three days for a pre-qualification letter to be completed.
It’s important to keep in mind that loan pre-qualification is simply an estimate from the mortgage company that is conditional, meaning it does not include an in-depth analysis of a credit report, nor a thorough look at your ability to purchase a new home.
In other words, pre-qualification (step one) is a good indication of a homebuyer’s creditworthiness and ability to borrow, while pre-approval (step two) is the definitive answer from the mortgage lender.
The lender will also review your paystubs, tax returns and bank statements. After a thorough review of credit and income, the mortgage lender generates a pre-approval letter to the homebuyer, including an estimated interest rate offer and maximum principal amount. It’s important to know that as your financial situation improves, it may be possible to become pre-approved for an even larger home loan with a better interest rate.
After pre-qualification and pre-approval, the final step in the mortgage approval process is a final approval which may be in the form of a loan commitment. A final approval or loan commitment is issued by a lender when a) you have been approved as the borrower and b) the home to be purchased has been approved by the lender after a review of an appraisal and title work.
As always, working with a local lender that understands your personal financial goals is key to ensuring the homebuying process is as painless as possible. At GoPrime, our local lenders are ready to guide you every step of the way from pre-qualification, to pre-approval, final approval and finally – closing on your dream home!