When considering buying a home, it’s highly recommended that the first step in your homeownership journey is to work with a lender to get pre-qualified or pre-approved for a mortgage. While the two terms sound similar and both help give buyers an understanding of how much they may qualify for a loan, there are distinctions between getting a mortgage pre-qualification and pre-approval. Let’s dive into the differences between these crucial first steps and benefits of each in your homebuying experience.
Mortgage Pre-Qualification: A Preliminary Evaluation
Pre-qualification is an early step in the homebuying and mortgage process. It offers buyers and lenders alike a high-level snapshot of a borrower’s finances and potential buying power. When getting pre-qualified, lenders will typically collect basic financial information provided by the buyer, including income, debts, assets, and any amount of savings or cash they may have available for a down payment. It’s a valuable starting point, giving you an idea of your budget before you start house hunting.
During the pre-qualification process, borrowers may be able to opt for a soft pull credit inquiry. This means your information would remain confidential, with no impact on your credit score and avoids unwanted credit solicitations and third-party trigger lead calls. Ask your loan officer about your credit reporting options.
While a mortgage pre-qualification is less detailed than a pre-approval, this step can be quicker and involves less documents to help busy homebuyers hit the ground running and start their home search. A pre-qualification letter can also show sellers your interest in buying a home and that you can afford an estimated mortgage.
Mortgage Pre-Approval: A Deeper Dive
A mortgage pre-approval takes a more detailed approach and provides an even clearer, more accurate picture of a borrower’s finances and capacity for a mortgage. This is because the loan estimate is based on validated details.
In this step, prospective homebuyers will need to provide their lender with thorough documentation of their financial history for verification, including records like pay stubs, tax returns, and bank statements. Lenders will also run the borrower’s credit score and verification of employment if applicable.
Once pre-approved, the borrower will receive the estimated loan amount they may qualify for based on the verified information—verified being the key differentiator between a pre-approval and a pre-qualification. A pre-approval also gives you, the buyer, a more competitive edge because it demonstrates to sellers that you’re serious and eager to buy a home.
Other Reasons to Get Pre-Qualified or Pre-Approved
- Determine Affordability. It gives you an idea of how much you can afford based on your credit, income, debt, and potential down payment funds. This will help guide your home search within your budget.
- Understand Monthly Payments. With the estimated loan amount you can qualify for, you can get a breakdown of your monthly principal, interest, taxes, and insurance costs to help set expectations for planning your mortgage.
- Find the Right Loan Program. Evaluating your financial details and knowing how much you can qualify for can also help you determine the loan type best fit for your needs and if you could benefit from programs such as first-time homebuyer or down payment assistance.
- Strengthen Your Offer. As mentioned, having a pre-qualification or pre-approval can show sellers you’re a credible buyer and strengthen your offer on a home, which is especially helpful in a competitive market.
- Save Time. Being prepared in advance with a pre-qualification or pre-approval helps identify and avoid any potential roadblocks that could arise during the mortgage process, setting you up for a smooth closing.
In conclusion, getting a mortgage pre-qualification or pre-approval offers invaluable knowledge and opportunities in your homebuying journey. Ready to take the first step? Our Supreme Lending loan officers are ready to serve you! Contact your local branch today.