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What’s The Difference Between Pre-Approval and Pre-Qualification? Which One Should You Get?

Confused about the difference between pre-approval and pre-qualification letters when it comes to home buying? In this informative blog post, we break down these terms and explain their significance in the home buying process. Discover the key distinctions and understand how pre-approval and pre-qualification can impact your journey towards homeownership.

When thinking of buying a home, knowing how much you can realistically borrow from a lender is crucial. One way to get that information is by getting pre-qualification or a pre-approval. Although they may seem similar, they have significant differences that can make or break your home buying journey. This article delves into what both of them are, and which one you should get.

Hand holding a pen to sign a paper. Pre-qualifications and pre-approvals are same, but different.
Pre-qualifications and pre-approvals are same, but different.

A pre-qualification can be the initial step in the home buying process. It involves a basic assessment of your financial situation to determine your borrowing potential. During pre-qualification, you provide the lender with an overview of your income, assets, debts, and other relevant financial information. Based on this preliminary evaluation, the lender provides you with a pre-qualification letter.

Key Points:

  • Pre-qualification is a quick and relatively informal process.
  • It gives you an estimate of the loan amount you might be eligible for.
  • Pre-qualification letters are not binding, and they do not guarantee loan approval.
  • They are useful for getting a rough idea of your budget and starting your home search.

A pre-approval takes the home buying process a step further. It involves a more comprehensive evaluation of your financial background by the lender. To obtain pre-approval, you need to complete a formal mortgage application and provide supporting documentation, including income verification, bank statements, and credit history. The lender then assesses your financial capacity and creditworthiness to determine the exact loan amount they are willing to lend you.

Key Points:

  • Pre-approval is a more rigorous process than pre-qualification.
  • It provides a more accurate loan amount based on verified financial information.
  • Pre-approval letters are more credible and carry more weight with sellers, as they indicate that you are a serious and qualified buyer.
  • They give you a stronger negotiating position when making an offer on a property.
  • Pre-approval is usually valid for a specific period (e.g., 60 or 90 days), during which you can confidently search for a home within the approved price range.
Still confused?

Here’s a table from Investopedia comparing the two:

Do I need to fill out a mortgage application?NoYes
Do I have to pay an application fee?NoMaybe
Does it require a credit history check?No Yes
Is it based on a review of my finances?NoYes
Does it require an estimate of my down payment amount?NoYes
Will the lender give me an estimate for a loan amount?YesNo
Will the lender give me a specific loan amount?NoYes
Will the lender give me interest rate information?NoYes
Differences between pre-qualification and pre-approval
Which one should you get?

Although both can give you an idea of how much you can borrow, getting a pre-approval holds significant advantages. While pre-qualification provides a general estimate of your borrowing potential, pre-approval offers a more accurate loan amount based on verified financial information. With a pre-approval letter in hand, you gain a competitive edge in the home buying process. Sellers view pre-approved buyers as serious and financially qualified, which can make your offer more appealing. Additionally, pre-approval gives you a clearer understanding of your budget, allowing you to focus your search on homes within your approved price range.

Want to learn more? Here are 3 Reasons Why You Should Get A Loan Pre-Approval (And How To Get One). Have a pre-approval and ready to take the next step? Let’s start your home search! Contact me here.

One response to “What’s The Difference Between Pre-Approval and Pre-Qualification? Which One Should You Get?”

  1. […] 5. A pre-qualification is different from a pre-approval. Which one should you get? […]

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