Pre-Qualification vs. Pre-Approval
As you’re going through the process of purchasing a home, you will undoubtedly come across the terms “mortgage pre-qualification” or “mortgage pre-approval” or maybe even both. What does it mean to be pre-qualified or pre-approved, and what’s the difference between them?
Similarities Between Pre-Qualification and Pre-Approval
According to the Consumer Finance Protection Bureau, pre-qualification and pre-approval are more similar than many think. Some lenders even use the terms interchangeably, while others have different definitions for each.
- Both are useful tools for estimating the loan amount for which you can qualify. Though it isn’t an exact figure, it can save on the frustration of finding a house you love, only to realize it is out of your budget down the road.
- If you have a pre-qualification or pre-approval letter, it shows sellers that you are serious when submitting your offer. A seller wants to be confident that you are able to secure financing when they accept your offer, and a pre-approval or pre-qualification letter helps you stand out and demonstrates that you are likely to be approved for a mortgage in the amount that you’ve offered.
- Neither one guarantees you will receive a loan from a lender. A decision maker, called an Underwriter, will ultimately review all of your documentation and decide whether you are qualified. However, a Loan Officer who has experience, and works for a reputable lender, will usually have a very good “batting average” in issuing these items.
The Differences Between Pre-Qualification and Pre-Approval
Pre-qualification is often the first step in the mortgage process, and is fairly easy to attain by verbally communicating your income and asset information to a lender. The lender will then run some calculations, along with pulling your credit report, to determine whether you would qualify for a loan and for how much.
A pre-approval is very similar, but instead of verbally telling the lender about your financial situation, you provide actual documentation evidencing your income (paystubs, W2’s, tax returns) and assets (bank statements, 401K statements, etc.). By providing such documentation, you increase the chances that a Loan Officer’s assessment will match that of the Underwriter.
Which One Do You Need?
Since the terms vary in definition by lender, and are used interchangeably in some situations, it can be hard to know which one is right for you. It ultimately depends on how your lender defines each term and whether you want to go so far as to provide pertinent documentation to your lender early in the process. Talk to your lender and real estate agent to figure out which best suits your situation.
We understand that financing a home can be a daunting task, but the experts here at Butler Mortgage are here to help. Our Loan Officers will do everything possible to make your mortgage experience as painless as possible, so you can spend less time worrying, and more time enjoying your home. Call us today at 407-931-3800 with any questions.