Many would-be homebuyers use the terms ‘pre-qualified’ and ‘pre-approved’ interchangeably. While both relate to your eligibility for getting a mortgage, they are two different processes falling at different points in the home-buying timeline.
Pre-qualification is your first step in the homebuying process and is intended to give you an idea of how large of a loan you can qualify for. Pre-qualification is quick, usually completed in one to three days. You can get pre-qualified online or over the phone at no cost. Pre-qualification does not require an in-depth look at your finances or an analysis of your credit report. It is merely the first step initiating a discussion with your lender on your home-buying goals and needs. The lender will explain your mortgage options and recommend the types of loans best meeting your goals and qualifications. Keep in mind that pre-qualification is just a guide. It does not guarantee you will ultimately be approved for the loan as described by the lender.
Pre-approval comes later and is far more complex than pre-qualification. To get pre-approved, the borrower must complete a mortgage application and provide the lender with the documentation to perform a full credit and financial background check. If everything goes smoothly, the lender will offer pre-approval for a specified loan amount. This will give you a more accurate idea of what your interest rate will be. If you’re ready to move forward, the lender will provide a conditional commitment in writing for an exact loan amount. This way you’ll have a realistic purchase price in mind as you look at homes. It can also give you an advantage in negotiating with sellers as you’ll be one step closer to being approved for an actual mortgage.
Surprisingly, many buyers choose to skip the preapproval process. Unfortunately, many sellers are unlikely to consider offers from buyers without a lender’s pre-approval letter. In today’s hyper-competitive housing market, you should do whatever you can to stand out from other potential buyers—getting pre-approved is one of the best ways to do that. Not only does it show you are serious about buying, but it sets you apart from those who skipped pre-approval. By getting pre-approval out of the way early, it can reveal any issues that could prevent you from purchasing a home and give you ample time to fix them.
Still hazy on the differences between these two terms? Think of it this way: pre-qualification is like an audition, and pre-approval is the rehearsal for your loan application. While pre-qualification will help get your foot in the door, pre-approval is what gets you the house you want.
If you have further questions, don’t hesitate to reach out to a USA Mortgage banker. We’re here 24/7 to help you get the loan that will get you the home you want.
