One of the most important moments in every person’s life is a moment where they decide to purchase a house. It’s not an everyday decision, so when the time comes, there are many things to think about and one of those things is a mortgage. Seeing how most people don’t really buy houses in cash, mortgage loans really come in handy.
Now, if you’re in the market for a house or your other first property, certainly you have heard expressions such as pre-qualified or pre-approved when it comes to mortgage loans. Often they’re mentioned in the same conversation, some even equate the two, but the fact is – they are not quite the same thing. To be fair, they are fairly similar. Both of these play a large role in understanding how big of a loan you qualify, but they ultimately mean different things. So, in order to eliminate confusion, we’ve decided to go more in-depth as to what these two terms actually entail. Let’s check out what the real estate professionals at AK Premier Real Estate Services in Raleigh North Carolina had to say about what each of these terms means:
Pre-Qualification
When the time comes and you’ve decided that it is the time to purchase a property, the best way to embark on this journey is to start with pre-qualification. Getting pre-qualified doesn’t mean that much when you take a look at the rest of the process, but it’s a start. By getting pre-qualified you gain an understanding of how much you can afford and you can enter the discussion on the various types of loans and the rest of the options you might have. Basically, this is a pretty good way for you to compare your options and possible lenders.
To make pre-qualification even possible, the potential lender will need you to provide them with some of the financial information like your annual income, your debt or information on assets or properties you may already possess. By analysing that information, the lender will be able to present you with an accurate assessment of how big of a mortgage loan you can qualify for as well as the rates and different loan packages available to you. Now, it’s important to note that any information you would be providing here would just be over the phone and you won’t need to provide any proof or documentation to support your claims.
One thing to keep in mind though, the pre-qualification assessment will only be as correct as the information you provide the lender with is. They won’t be authorized to pull your credit or check the validity of the information you gave them. However, it’s not in your interest to lie or alter information in any way, as your goal here is to gain a better insight into how much you can expect to get from your mortgage lender.
As you can already see, pre-qualification is virtually a quick, risk-free way to check where you’re standing and also, as we’ve already mentioned, a good way to compare rates and loan options of different lenders.
Also, when we say quickly, we really mean it, because according to many and among others, the pre-qualification process should last no more than 20 minutes.
Now, there’s one more thing pre-qualification comes in handy for and that is understanding and improving your position as a buyer. If we assume that you’re working on improving your credit score or debt to income ratio, because you want to buy a house, getting pre-qualified from time to time can help you keep check with your progress easily.
Pre-Approval
Being pre-approved is what it’s all about when it comes to a mortgage. This is usually the step you take when you’ve really decided that it is time to buy a house. This is a process of a thorough investigation of your financial situation, meaning – in-depth analysis of your income, debt, asset, credit score and history and so on.
Unlike in the previous case, the lender will need you to provide them with proof and documentation to support your financial claims. Like we’ve mentioned, it’s a thorough investigation process, so before you get your pre-approval letter you’ll need to provide the lender with bank statements, tax records, pay stubs, credit history and so on. Additionally, in most cases, you’ll need to fill out a formal mortgage application for a pre-approval letter, as well. If you come prepared with all the necessary documentation, you can be pre-approved before you go to bed that day.
Now, unlike pre-qualification, you really shouldn’t just fill out a mortgage application just whenever. The best time to get pre-approved is when you’ve definitely decided that you’re going to go through with a purchase in the next 90 days and you’ve selected the lender you want to go with. We’ve mentioned the 90-day period as it’s how long the pre-approvals usually last, but don’t worry, they can easily be renewed.
So, why is this important? Well, once you get your pre-approval letter, it’s easier to submit a formal offer to the seller. Basically, it’s better for both of you if you are pre-approved. In that case, both the buyer and the seller are in a good position. With the pre-approved letter in hand, the buyer knows that they will be approved for the mortgage and the seller knows that they’re dealing with a serious buyer and that the deal might be closing soon. So it’s a win-win for both parties.
Final Thoughts
As you can see, these two are fairly similar and kind of dependent on each other, but shouldn’t be considered the same in any way. They have different applications and aren’t really comparable as they both mean a different thing. Look at it this way. Pre-qualification is a risk-free and quick way to gain an accurate estimate of a loan amount without providing any documentation, paying a fee or signing anything. It’s done over the phone and usually takes no more than 20 minutes.
Pre-approval on the other hand is the ‘closing’ step. You upgrade from an estimate to a specific loan amount, you learn about interest rates, you provide documentation for an extensive check-up and you fill out an official mortgage application because more often than not, you will take one out sooner rather than later.
Hopefully, we’ve been helpful and you now know the key differences between the two, but if you’d like to know more about whether pre-qualification or pre-approval is better for you, then simply follow the link to the article mentioned here.
