When you pre-qualify for a home loan, you’re getting an estimate of what you might be able to borrow, based on information you provide about your finances. Pre-approval is as close as you can get to confirming your creditworthiness without actually having a purchase contract in place.
If you’re serious about buying a home, it’s vital to understand how important these two steps are in the home buying process and difference between pre-qualification and pre-approval.
What is Mortgage Pre-Qualification?
Mortgage pre-qualification is an opportunity to learn about the different mortgage options available to you and your unique situation. After submitting items like your income, credit score, debt, and estimated down payment to your lender, you’ll work with them to identify the right fit for your needs and goals.
It’s important to note that pre-qualification does not mean you’re approved for a loan. It is only a rough estimate of a mortgage payment – not an exact amount.
Information Needed for Pre-Qualification
- Income information
- Credit score
- Bank account information (basic information)
- Down payment amount
- Desired mortgage amount
What is Mortgage Pre-Approval?
Mortgage pre-approval is completing a mortgage application and submitting financial documentation such as pay stubs, tax returns, investment accounts, and more. The lender will verify the information you provide and perform a hard credit check (this does affect your credit score).
Pre-approvals help buyers know the mortgage amount they will most likely qualify for. This does not guarantee final approval for a mortgage! There are many times when applicants are denied pre-approval. Obtaining mortgage pre-approval is the best way to show everyone involved in the home buying process that you’re serious about purchasing a home.
Mortgage pre-approval sets you apart from the competition – those who have only pre-qualified.
Because pre-approvals take time and go through a very thorough process involving your credit score and credit history. Although the process varies from lender to lender, pre-approval is much more accurate than pre-qualification.
Information Needed for Pre-Approval
- Pay stubs from the most recent 30 days of income
- Accurate credit score
- Bank account numbers and two most recent bank statements
- Down payment
- Desired mortgage
- W-2 statements and tax returns from the past two years
- Explanation of credit inquiries (if you recently applied for a loan or car)
- Divorce settlements, bankruptcies, child support, or any other significant factor in finances
Pre-Qualification vs Pre-Approval: What’s the Difference
The most significant difference between pre-qualification and pre-approval is that pre-qualification just provides a very rough estimate for buyers. In contrast, pre-approval lets them know approximately the mortgage amount in which they will qualify for.
The benefits of pre-qualification are:
- It’s free and can be conducted online or in person.
- It’s considered a soft credit check – meaning it will not impact your credit score.
- It only takes a few minutes to see if you qualify for a potential mortgage and interest rate.
The benefits of pre-approval are:
- You obtain a very accurate home loan amount that you may be able to afford.
- Demonstrates your creditworthiness.
- Reduces the time it takes to purchase a home.
Pre-qualification is the very first step to estimating your eligibility to purchase a home. It’s more of a goal-setting step than an actual leap. It helps buyers narrow down their options and focus on homes they know they can afford. Whereas pre-approval is the leap and puts buyers one step closer to an actual purchase.
Should You Skip Pre-Qualification and Get Pre-Approved?
If you have a low debt-to–income ratio, strong credit, and a solid financial history, pre-qualification can be skipped. However, if you’re serious about buying a home, pre-qualification cannot and will not hurt you.
If you must choose between pre-qualification and pre-approval, the choice is always pre-approval. Pre-approval is a step that cannot be skipped for serious buyers.
Steps to Buying a Home
- Research the housing market, mortgage rates, and the area in which you want to live.
- Obtain pre-qualification
- Make an offer
If you’re serious about buying a home, it’s time to receive a mortgage quote, analyze it, and arm yourself with the ever-important pre-approval letter. To make things easier for you, all visitors from Loan Compass pay NO LENDER FEES!
Once you receive your quote, we also have a mortgage calculator to help you analyze and understand your monthly payments. At Loan Compass, we want to make the home buying process as stress-free as possible for you. That’s why we’re here to help educate you through the process and try not to push unnecessary features or information on you.
Are you ready for pre-approval? Get in touch with a mortgage professional to receive a free no-obligation mortgage quote or simply call (844) 570-0390.