Pre-Approval vs. Pre-Qualification
We know that getting ready to purchase a home can be confusing, so we at The Realty Deal strive for client education, to help you make informed decisions. It is important to know the difference between a pre-qualification and a pre-approval, as one could lead you on, while the other nurtures your path to homeownership.
One of the primary steps of Buying a Home, is getting pre-approved for a mortgage. You should do this before the house hunt begins, so we (your Realtor) can show you houses that you can afford, to ensure we don’t waste any time or get your hopes up. There should be an open line of communication between your Realtor and your Mortgage Agent throughout the process, from determining the price range criteria, to putting forth an offer.
In the grand scope of things, a Pre-Qualification is a birds eye view of your ability to borrow, while a Pre-Approval is a magnified view.
Let’s start with a Pre-Qualification. It is essentially a brief overview of your credibility, including income, assets, credit scores & job security. This can actually be done with minimal paperwork and no certified documentation. You may think, well that can’t get me very far – and you’re right. It will not provide any guarantee to finance your future property. Although it’s not completely useless. If you are thinking about moving next year and just want to keep your eye on the market, then it may prove helpful to give you an idea of your price range and any debts you should pay off first. But if you are ready to start actively looking for a new home, and want to be able to lock something down, a pre-approval is necessary.
A Mortgage Pre-Approval is a more detailed explanation of the potential Buyer’s credibility. In this case, your mortgage lender will actually run your credit, and verify certain documents such as tax returns, pay stubs, current mortgage statements, etc.
Find a comprehensive list of what documentation you will likely need for a mortgage pre-approval here.
Pre- approvals usually last 90-120 days (meaning that’s how long you are ‘guaranteed’ that rate & terms).
Getting pre-approved is not only helpful for your home search, but also working out the numbers of a specific property. For example, if you find a home you love, you can break it down to the monthly expenses, and from there determine if you can afford it. What may be impeding your ability to assume larger payments (or any at all) is the obstruction of credit issues that you may need to remediate prior to purchasing.
How it works is, your loan will be submitted for preliminary underwriting. When your mortgage lender receives it back (usually within 24 hours), they will provide you with a mortgage pre approval letter that defines your allowed loan amount. Give a copy to your Realtor and start the home search!
Going to your mortgage agent, whether from the bank or an independent broker, and obtaining a Mortgage Pre-Approval, is the absolute best way that you can feel confident moving forward in the Buying Process. You can get a Pre-Qualification, but it doesn’t mean you will get a mortgage, whereas with a Pre-Approval, you have your buying abilities laid out in front of you. Hopefully the next step will be getting your offer accepted!
First time home buyers sometimes find The Buying Process Overwhelming or confusing. Don’t forget that we at The Realty Deal care about your education and financial literacy, and are here to help you through the process. Ask us any of your real estate related questions right now, and visit our Blog and Buyer’s Page for more helpful information!