When searching for homes, it’s incredibly important to stay within the price range that’s comfortable to you.
Knowing what loans are available to you can help you find the right home—at the right price. Now, you might hear the terms “pre-approval” and “pre-qualification” during your home search. While these terms are often used interchangeably, they have two very different meanings.
What is Pre-qualification?
Pre-qualification is an estimate of how much you can afford in a mortgage payment. It's based on information provided by you, the borrower. Because pre-qualification doesn't guarantee a loan—it only estimates one—the lender usually doesn't verify the information you provide In other words, pre-qualification is an educated guess made by the lender.
What is Pre-approval?Pre-approval is a firmer commitment from the mortgage company. This is the step where the lender will use a credit report to verify monthly payments on installment loans and credit cards, and to check payment history on these loans. During pre-approval, the mortgage company does all the work of a full approval—except for the appraisal and title search.
What does this mean for you?
Keep in mind that neither pre-approval nor pre-qualification guarantee a mortgage. Before agreeing to make a loan, lenders will still need to look at property appraisals, verify information, and possibly re-check credit.
So why should you get a Pre-approval?
Obtaining a pre-approval at the start of the buying process means you can make an offer on a house quicker—and avoid the headache of not qualifying for a home you have under contract. This saves everyone involved in the process a lot of time!
Remember you can ask your REALTOR® to help you prepare the pre-approval information lenders usually request.