Pre-qualification vs. Pre-approval
Pre-qualified and pre-approved are two of the most common terms you may encounter when applying for a mortgage. People often use these two phrases interchangeably, but they’re not the same. Here we’ll discuss everything you need to know about pre-qualification and pre-approval, covering their definitions, requirements, differences and more.
What Does Pre-qualified Mean?
Getting pre-qualified means getting an estimate from a lender of how much money you can borrow to buy a home.
During the early stages of the home-buying process, you may want to know how much house you can afford. To determine that amount, lenders and banks need a rough idea of your finances. They will likely request some financial information, including assets, income, debts, etc.
This is the pre-qualification process. It can be conducted online, in person or over the phone and is usually free. Based on the information you provide, the lender will give you an estimate of how much money you could borrow in the form of a mortgage. The estimate is not an offer for a loan and assumes you’ll meet the lender’s specific requirements in the future.
What Does Pre-approved Mean?
Getting pre-approved means that you have applied for a loan, you meet the lender’s requirements and they will offer you a specific loan amount.
Pre-approval is usually the next step after pre-qualification. The lender will conduct a thorough financial background check based on the information you provide in your application. If you meet their requirement the lender will issue you a letter of pre-approval for a specific loan amount.
Pre-approval allows you to search for homes with confidence. If you find a home within your pre-approved price range you can make an offer right away! You also have an advantage over other potential buyers since you’re one step ahead and ready to close the deal quickly.
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*OAC. Horizon will cover the cost of an appraisal, if one is needed, for new purchase home loan applications received 4/22/24 through 8/31/24. Membership fee and restrictions may apply.Key Differences
Pre-qualification and pre-approval are very different, even though they sound similar. During pre-qualification, you’ll provide basic information, such as your income, down payment amount, desired mortgage amount and so on.
During the pre-approval process, the lender may ask you to provide copies of your pay stubs as proof of income, financial background check, bank statements, down payment amount, desired mortgage amount and tax information.
Pre-qualification comes before pre-approval. The lender may provide an estimate of what they can offer based on the information you provided during pre-qualification. The amount may change during pre-approval after reviewing your financial records.
Lastly, pre-qualification provides a rough idea of how much mortgage you may be eligible for, while pre-approval gives you the confidence to engage sellers, knowing the lender has a certain pre-approved amount to offer.
Ready to Buy a Home?
If you’re interested in buying a new home, make sure to reach out to one of our home loan specialists. Our specialists know the mortgage industry inside and out and are happy to speak with you about your options and needs. A conversation won’t lock you into anything. It can only help you! Give us a call today at 800.852.5316.
Read more articles like this on HZCU’s Financial Knowledge Hub.
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