Pre-Qualified versus Pre-Approval
If you’ve begun researching what it takes to buy a home, you’ve likely come across the terms ‘preapproval’ or ‘prequalified’ in regards to a home loan. While sometimes used interchangeably, these are two different steps in your home-buying journey. In this blog, we’ll define these terms and help you decide which one is best for where you are in the home shopping process.
What is Pre-Qualified?
Pre-qualification could be viewed as the first official step in the home buying process. Some real estate agents won’t even begin to work with you in earnest until you complete this step.
A pre-qualification is not as strong as a preapproval. A pre-qualification is intended to give you a rough idea of how much a lender would be willing to give you based on information that you, the borrower, provide to the lender. Some of the information you’ll be asked to provide could include:
- Social Security number
- Employment status
- Proof of income
- Estimated down payment if purchasing a home
- Late mortgage payments
- Bankruptcies or foreclosures
In this phase of the process, the amount you qualify for is conditional, since the lender won’t be looking at your financial status and history too closely. You still have to go through the official preapproval process to secure the loan.
When you would choose pre-qualification
So why bother with a pre-qualification, instead of going straight to preapproval? This part of the process doesn’t cost you anything but time. You won’t be paying any fees or filling out onerous paperwork. Prequalification does not affect your credit score either, as it is considered a “soft inquiry”, unlike a pre-approval.
Perhaps, you’re still in the browsing phase of the home-buying process. If so, get prequalified. The process is shorter, but will allow you to act quickly should something come up that strikes your interest. It also helps you have a clearer understanding of the range of homes you should be considering in your initial searches.
What is pre-approval?
Pre-qualification is testing the water, but preapproval is diving in. Where pre-qualification is a decent indication of whether or not you can get the desired loan amount, preapproval is your lender’s official answer. To get pre-approved for a loan you, the borrower, must complete an official mortgage application. You also must provide requested documentation, and submit a thorough credit and financial background check. In addition to what is required for a pre-qualification, you’ll also need to provide more concrete documentation to prove your financial status. This includes bank statements, pay stubs, and tax documents.
During this phase, you will also receive information as to interest rates, the actual loan amount you can receive, and the estimate of the down payment required. Becoming pre-approved puts you close to the end of the process. Be aware that your loan journey is not completed until you choose the property you’d like to buy. Pre-approval also has an expiration date. Speak with your lender to know how long the offer lasts.
When you would choose pre-approval
If you’re ready to buy a home at this moment or are in a competitive market; you want pre-approval over pre-qualification. Sellers will take a pre-approval more seriously than a pre-qualification letter. The downside of pre-approval is it can lower your credit score due to the review of your credit being a “hard pull” or “hard inquiry”. If you’re just curious about how much you might be able to borrow, this is not the right step for you. Each review of your credit score can lower it, changing how much a lender would be willing to offer, so you want to avoid this step until you’re truly ready to buy.
We can help you choose
Each situation and homebuyer is different. If you’re wondering whether preapproval or pre-qualification is your best next step, contact us at info@lisafleckteam.com. We can help you make the right decision and give you the resources necessary to move forward in your home-buying journey.