One of the questions we hear frequently from our clients is…“What is the difference between a Pre-Qualification and a Pre-Approval?”. You can think of a Pre
To Pre-Qualify or Pre-Approve...That is the Question!
One of the questions we hear frequently from our clients is…“What is the difference between a Pre-Qualification and a Pre-Approval?”.
You can think of a Pre-qualification as the 1st step in the mortgage process. It simply gives you an idea of how much of a loan you might can expect to be approved for. Pre-qualification is based on information the borrower provides to the lender, so it doesn’t mean that much, if the information provided is not completely accurate.
Obtaining a pre-qualification is a relatively quick and can many times be handled with a phone call or even online. Since the pre-qualification is based only on information that the consumer provides to the lender, a pre-qualified buyer does not carry the same weight as a pre-approved buyer.
Pre-Approval is the 2nd step. It is based on information that has been verified – for example a credit check. It is a conditional commitment to actually grant you a mortgage based on the information that you have provided to the lender.
A pre-approval carries more weight because it has been more thoroughly investigated. Obtaining a pre-approval is a much more involved process than that of obtaining a pre-qualification. You must complete an application for a mortgage and supply the lender with all the documentation needed to do an extensive check on your complete financial background, including income, debts and assets, as well as your current credit rating.
A pre-approval will also give you a better idea of the interest rate that you will be charged for your loan, because this is often related to your credit score. Another advantage to pre-approval is that the lender will be able to provide you with an estimate of your down payment needed, as well as Closing costs. Once a lender reviews all of this information, they will be able to give you a better picture of how much you can expect to borrow. (Be aware that many lenders also charge an application fee for pre-approvals.)
In today’s market, a pre-qualification letter, at minimum, is many times required to be submitted with an offer to purchase, as sellers want to know that the buyer whose offer they select will be able to perform on the contract. Already having your pre-approval in place puts you ahead of other buyers that have not yet obtained a pre-approval from their lender, as this lets the seller know that you are one step closer to getting your mortgage. Another great reason to start the process of obtaining a pre-approval prior to beginning your property search is that you will know which properties you can afford. You won’t waste your time looking at properties that are out of your reach in price.
We hope this helps to explain why one of the first questions we ask our clients when they are beginning their home search is, “Have you met with a lender to obtain a pre-qualification or pre-approval?”. Already having your pre-approval in place will allow you to move quickly to make an offer when you find the perfect property and will also make you look more serious to the seller.
Interested in starting the process of looking for a new home and don’t have a lender? We have excellent lenders, that we have great working relationships with, and we would be happy to introduce you to one of them.
Give us a call today and let’s get you pre-approved so you will have an advantage over many of the other buyers in todays’ market!
Treating customers like family is both a guiding principle and way of life for Walt and Emilie Davis. A husband and wife duo, they are dedicated to listening intently, understanding and matching indiv....