Once you decide that you want to start the next stage of your life and buy your very first home, you might find yourself coming across a lot of new terms and jargon related to the mortgage industry that you are struggling to understand. Two such terms are Pre-qualified and Pre-approved for a mortgage loan. But what exactly do those two terms mean, and how are they different? We will discuss what these two terms mean, what you need to know about them, and how they are different
Pre-qualification for a mortgage loan is in important first step in getting a mortgage loan, but it is just a first step. It involves providing prospective lenders with a slew of information regarding your current financial status and health. Information that might be provided during pre-qualification includes data and documents that provide lenders with an understanding of your debt, income, assets, and any important ratios concerning their relationships.
Getting pre-qualified is usually quicker than getting pre-approved and only takes about 1-3 business days for lenders to complete. Pre-qualification does not involve a deeper analysis of borrowers credit history and ability to realistically purchase a home.
Pre-qualification can be an important step to take before getting officially pre-approved for a loan. Pre-qualification allows borrowers to get a better understanding of what kind of amount they might be able to expect to receive when they actually get their mortgage loan. It also allows borrowers to have an open discussion with their lender about affordability and what kind of loan options are best suited to them.
Getting pre-approved is the next step following pre-qualification. Pre-approval includes a much more involved look deeper into a borrower’s personal finances and fiscal health. It requires borrowers to complete a full and in depth mortgage application, as well as supplication of important documents that lenders need to analyze prospective clients.
Upon reviewing a borrowers financial information, lenders will be able to provide their customers with a set specific amount they will be able to receive for their loan. Going through the pre-approval process will also provide lenders with a stronger understanding of the kinds of interest rates they might be able to expect on their mortgage loans.
There are some very important difference between pre-qualification and pre-approval. The first is that a pre-approved buyer will carry significantly more weight during the buying process and looks better than a buyer who is only pre-qualified.
The second is that the pre-approval process requires significantly more work and is a greater time commitment because of the application process as well as all the collection of relevant documents. However, all the work is usually worth it and improves your chances of successfully buying a home.
The third and final key difference is that pre-approval requires an in depth check of your credit history, so you will want to make sure your credit is solid before looking to get pre-approved.