What's it Take: Mortgage Pre-Approval vs. Pre-Qualification
Published | Written by Liz Kaye
Despite their shared similarities, pre-approval and pre-qualification can easily be confused by both buyers and sellers. As a home buyer, it's very important to understand the difference. You'll learn the definition of both and how they differ, as well as when they should be used and what steps you should take to complete the process below!
WHAT'S THE DIFFERENCE?
Pre-qualification requires you to submit your income, debt, credit score and estimated down payment to a lender. From there, the lender will provide you with an estimated mortgage amount you may qualify for. Pre-qualification will give you the chance to learn about different mortgage options and determine with your lender what is best suited for your specific needs. DISCLAIMER: pre-qualification is an estimate. It does not inquire upon your full financial history, which could factor into what options are best for you. Pre-approval involves submitting extensive financial documentation. This can include documents such as tax returns, bankruptcies, divorce settlements, pay stubs etc. You will complete a mortgage application and the lender will verify all the information you provide. This is the closest you can get to confirming your creditworthiness without a contract in place. Note this does not guarantee money will be lended. Should you choose to move forward and pass the mortgage lender's underwriting requirements, you will then receive loan approval.
WHAT DOCUMENTS DO I NEED FOR PRE-APPROVAL?
Below is a list of documents you will be asked for in the State of Missouri when inquiring about mortgage pre-approval. Please note that this will vary from lender to lender and you should always verify what's needed with your specific lender prior to your appointment.
HOW LONG DOES IT TAKE?
Pre-approval and pre-qualification can take different amounts of time dependent primarily on your preparedness and what lender you choose to go through. In many situations, pre-qualification is a simpler process that can actually be completed online with same-day results. Because mortgage pre-approval involves verification of several documents, this process is likely to take much longer.
YOU'RE APPROVED... NOW WHAT?
After becoming pre-approved, you and your agent will begin the home search. When you're prepared to make an offer on a home, you will have to provide your lender with a copy of the purchase agreement. The lender has the home appraised to ensure it's worth the asking price and begins underwriting the loan. If your lender gives you mortgage approval, you can then purchase the home.
WHICH IS RIGHT FOR ME?
It's recommended to get pre-approval when starting the home search with a real estate agent, and some real estate agents actually require it. Pre-approval has proved to be valuable when bidding on homes in a competitive market to ensure you stand out among other potential buyers. Pre-approval is especially valuable to first-time buyers to establish their homebuying budget and figure out how much they may be able to borrow. Does this impact my credit score? Pre-qualification involves running a soft credit check (which is free) that doesn't impact your credit score. Mortgage pre-approval, however, involves running a hard credit check that can impact your credit score. Your credit score will only be affected once if you receive pre approval from one lender (all credit inquiries are typically lumped into one).
WE WANT TO HEAR FROM YOU
What other questions do you have in regard to pre-approval or pre-qualification? About to start the homebuying process and don't know where to begin? Comment below what posts we can make in the future to simplify this procedure!
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