At first glance, getting pre-approved and pre-qualified may seem like the same thing; both processes tell you if you’re able to take out a home loan and how much the lender is willing to loan you. However, there are key differences between the two. Let’s take a deeper look into the difference between getting pre-approved and pre-qualified.
The Difference Between Getting Pre-Approved and Pre-Qualified
Getting pre-qualified is the very first step in the home buying process. It’s a high level look into your financial situation that can quickly be assessed over the phone. When going through pre-qualification, you provide your lender with information about your income, assets, and debt. Your lender then performs a credit evaluation and determines a ballpark estimate of how much money you may be able to borrow. At this stage, the biggest difference between getting pre-approved and pre-qualified is that in pre-qualification, you’re not guaranteed and exact loan amount and have no guarantees.
Loan pre-approval is more involved and in-depth that pre-qualification. One of the biggest differences between getting pre-approved and pre-qualified is that at in pre-approval you’ll need to complete a mortgage application. As your lender did before, they will assess your loan amount based on the documents provided. The difference is that this time the background check will be performed with an underwriter who reviews your credit report, pay stubs, bank statements, taxes, assets, obligations, and any other forms you need to fill out regarding your person file. Once your lender and underwriter assess these documents, a true and exact loan amount is issued to you. At this point you are able to check listings with an exact price range in mind.
Why Do Either?
While neither process is necessarily mandatory to complete when purchasing a home, doing both a pre-qualification and pre-approval can help your be more successful in your home search. When you receive the exact loan amount from your lender, you can automatically weed out any outliers that you may fall in love with. As you can imagine, this can help prevent wasting time and falling in love with a home that isn’t in your price range. Additionally, getting pre-approved before visiting homes help signal to the agent that you’re serious about the home and that you can qualify for it. In a competitive market, such as the current Seattle market, this is a huge advantage as buyers who have already been pre-approved can move quickly if they are serious about a home. Knowing the difference between a pre-approval and a pre-qualification will help make your home buying process smoother as well as give you a clear direction when you search for homes. And by going through these processes, you can stand apart from the competition with a better chance at securing your future home.
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