Welcome back to my blog. This week we’re hashing out the difference between a mortgage pre-qualification and a mortgage pre-approval.
This is step two of the home buying process and a really important step at that.
So, what’s a pre-qualification?
A pre-qualification is a quick estimate from your lender on how much you can possibly afford. It’s quick because it doesn’t require much to get. You simply give your lender your name, phone number and some numbers that show your income, assets and debts. Let’s hope you’re being honest here! Once you give those items to your lender over the phone, online or in person, they’ll get you a pre-qual in about 24 hours.
So, what’s a pre-approval?
A pre-approval is a step above a pre-qualification. Your lender dives deeper to verify your income, assets, credit history, rental history and debts. Once this is done and you’ve gotten your pre-approval letter, you may now shout for joy. Why? Well because a pre-approval translates to you being qualified to borrow a certain amount of money at a certain interest rate subject to the appraisal and a few other things. It also means your lender is confident you can make the necessary down payment as well as cover your future mortgage payments.
What’s all needed for a pre-approval?
For starters, you’ll need a valid form of identification. Your driver’s license or passport will do. You’ll also need your social security number to perform the credit check and certain documents to verify your income. To verify income, your lender may ask you for pay stubs, tax returns and/or W-2s from the previous two years. If you have any assets, financial investments, additional sources of income like a second job, bonuses, etc., additional documentation may be requested. Note, this does not cover all items your lender may request from you, just the most common items. For a more detailed list, shoot me over an email.
So, to recap, a pre-approval and a pre-qualification are two totally different things. Some people do use the terms interchangeably, but there are indeed different. Pre-qualifying is the first step. It gives you an idea of your purchasing power and allows you to begin touring homes but a pre-approval is what you really need. It’s the step that provides you with a conditional commitment to actually get your home loan.
Keep in mind, when you and I locate the perfect home for you, you’ll want to make an offer. When making this offer, the seller will want to see that you’re a serious and qualified buyer. In a competitive market, sellers prefer pre-approval letters over pre-qualification letters. They want to know you are conditionally approved in regards to your financing. This can be a deciding factor on you purchasing your dream home. Wouldn’t you want to submit an offer and you know you have the upper hand?
Well guys, that concludes the summary of the difference between a mortgage pre-approval and pre-qualification. I hope this blog was informational and insightful. Interested in buying a home? Have further questions regarding loans? Contact me anytime!