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Home Buying Articles

Mortgage Pre-Approval vs. Pre-Qualification

Pre-Qualification

  • General estimate
  • Fast—takes as little as 10 minutes
  • Financial information is NOT verified
  • Credit is not checked

Pre-Approval

  • Promise to lend, subject to home evaluation
  • More in-depth—takes at least 48 hours
  • Financial information IS verified
  • Credit is checked

As you prepare to buy a new home, one of the most important considerations for you, your real estate agent and sellers is how much home you can afford. If you choose to finance the home with a mortgage, you need to find out from a lender how much money you can borrow. You’ll also want to figure out what payment amount is comfortable for you within your overall monthly budget. Just because you can borrow a certain amount doesn’t necessarily mean you should spend that much.

Pre-Qualification

If you decide to go the home loan route and want a quick, general idea of your spending power, getting a mortgage pre-qualification is a good first step. Being pre-qualified means you’ve told your lender basic information about your assets and income and they’ve come back with an estimate of how much home you can afford. That estimate is not guaranteed by the lender because they most likely have not seen proof of your finances or pulled your credit at this point. In fact, you haven’t even put in an official mortgage loan application yet. Think of pre-qualification as a loan amount you MAY qualify for IF you apply. The benefit of pre-qualification is speed. You can get pre-qualified over the phone in as little as ten minutes. However, if you want to create a meaningful impression on real estate agents and sellers, you’ll need to get pre-approved.

Pre-Approval

Being pre-approved for credit for a mortgage means you’ve taken the process beyond pre-qualification. You’ve submitted a loan application via a Mortgage Banker who has pulled your credit score, and you’ve given the lender all of your necessary documentation for mortgage pre-approval requested by the lender regarding income, assets and employment. With a pre-approval for credit, an underwriter has reviewed the loan file and issued a written promise to lend, subject to review of an appraisal on the house in question and other conditions depending when you find your home.

From a real estate agent’s perspective, pre-approval gives you a leg up on other, less-prepared consumers. Pre-approved homebuyers can act faster when they find a house they want because they already have their financing well in hand. In fact, many real estate agents will only work with pre-approved homebuyers because they know their price range with certainty. It also shows sellers that the customer is a serious buyer.

What to expect

Pre-qualification is usually much faster than pre-approval because the lender doesn’t verify the information you have provided. For a pre-qualification, lenders will typically ask for your personal contact information, an estimate of your credit score, a general idea of home price and what type of home you’re looking for (primary vs. secondary residence, condo vs. single-family house, etc.). Lenders will want to pinpoint your debt-to-income ratio (the percentage of your gross monthly income that goes toward paying off your total debt) and your potential loan-to-value ratio, or LTV (the percentage of the total value of the property you are looking to purchase that represents your home loan amount). Also be prepared to tell your lender about any down payment you may be planning to make. Credit will NOT be checked, so don’t worry about a pre-qualification affecting your credit score.

For a pre-approval, the lender will obtain your credit report and ask you for initial financial documents such as tax returns, pay stubs, W-2s, bank statements, etc. It’s an in-depth investigation of your finances, so expect it to take a couple of days or more. The extra time may be worth it in the long run given the clout pre-approvals have.

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