Shopping for a home can be tedious. Besides trying to find your dream house, there’s getting a pre qualified vs pre approved mortgage.
I can hear you now…
Isn’t being pre qualified the same as being pre approved?
It turns out they're both very different.
One is a good indication of creditworthiness and an estimate of what you can afford.
And the other?
Well, that’s one step closer to approval and can make it easier to buy a home.
What is the Difference Between Pre Qualified vs Pre Approved?
When considering a pre approval vs pre qualified mortgage, a pre qualification is the first step on your home-buying journey.
A pre qualification tells you how much a lender would likely approve you for.
But your pre qualification relies on the information you provide about your credit history, income and assets.
Lenders take your word that what you're telling them is accurate. They calculate how much you’ll likely qualify for based on that information.
This gives you a ballpark estimate on how much house you can afford.
It’s not a guarantee that they’ll approve you for that amount, but it’s one step closer to getting the house of your dreams.
So, how is a preapproved vs prequalified mortgage different?
To start, lenders require cold, hard facts to process a pre approval.
You’ll provide documented proof of income, bank account balances, credit scores and owned assets along with your pre approval application.
Using the documentation you provide and your credit report, lenders determine what they’d approve you for if you bought a home.
It’s called a pre approval because your final approval can be subject to several conditions, including the property itself.
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Pre Qualification Letter vs Pre Approval Letter
Lenders can provide proof of a prequalified and preapproved mortgage in writing.
They use what’s called a pre qualification letter and a pre approval letter.
Pre qualification letter is proof you’re working with a lender.
Some home listings require you to submit a pre qualification letter with an offer on the house. It's proof that a lender is optimistic about how much home you can afford.
But that’s it.
A pre qualification letter is not binding, and it’s not a promise that you’ll get approved for the amount in the letter.
But it’s still good to have when you’re house shopping. It can add weight to your offer because it shows you’re serious about buying a house and securing a home loan.
Now let's consider a pre qualification letter vs pre approval…
A pre approval letter holds more weight.
That’s because it’s proof that a lender will approve you for a home loan. Remember that it’s still a pre approval and some conditions may apply to finalize the loan.
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How to Get a Mortgage Pre Approval vs Pre Qualification
It’s important to know that some lenders treat getting pre qualified and pre approved for a mortgage the same.
Generally, you choose a lender and discuss your credit, income, assets and employment situation.
Most lenders will ask you to complete a loan application to get started.
Here’s how they’re different:
With a pre qualification, you discuss your qualifying factors with the lender, and they estimate what you can afford.
They’ll likely do a credit check to determine your creditworthiness, but it’s usually a soft inquiry and won’t impact your credit score.
With a pre approval, the lender will ask for income documentation, such as your paystubs, W-2s and tax returns. They'll also ask for bank account statements, proof of owned assets and proof of employment.
Lenders typically do a hard credit check at this point, which can affect your credit.
Lenders use the information to determine if you qualify for their loan program.
Remember: It’s not a guarantee of approval, but it’s one step closer.
Things to Consider in a Preapproved vs Prequalified Mortgage
As soon as you think about buying a home, take the steps to get pre qualified or pre approved.
But it provides you with a starting point.
You’ll know where you stand and how much house you can afford.
And if you aren’t approved for as much as you thought, you can ask the lender for tips to increase the amount they’re willing to lend.
You might work on boosting your credit score by paying down your debts. You could also ask for a raise to improve your debt-to-income (DTI) ratio or set more cash aside for a down payment.
But there’s a catch:
Most mortgage pre approvals are only good for 30 to 60 days.
If you go longer than that before finding a house to buy, you may have to start the process over.
Pre Qualified vs Pre Approved Mortgage: Is It Worth It?
Because a pre qualification isn’t binding, is it worth it?
Or should you skip straight to a pre approved mortgage?
Some lenders use pre qualification and pre approval interchangeably. In that case, it won't make a difference which you pursue because they'll both have the same effect:
They’ll help you and a seller estimate what you can afford.
But remember: it's only valid for up to 90 days. While it should be your first step, make sure you're committed to being a homeowner before starting the process.