If you’re thinking of buying a home, you’ve probably been told you need to get mortgage pre-qualification or mortgage pre-approval. Though the terms are often used interchangeably, they refer to two separate things.
Here’s a breakdown of some of the key similarities and differences
Mortgage Pre-Qualification vs Pre-Approval – Key Similarities
Mortgage pre-qualification and mortgage pre-approval are both optional steps that can be used by would-be homeowners to speed up the mortgage approval process.
In both cases, you receive a conditional loan amount from a lender or mortgage broker that can help you set your house-hunting budget. Mortgage pre-qualification and mortgage pre-approval can both be used to show you mean business when placing an offer on a house, though mortgage pre-approval is much more effective in this regard.
On that note…
Mortgage Pre-Qualification vs Pre-Approval – Key Difference
Mortgage pre-qualification is an estimate created using your unverified, self-submitted information. If you say you earn $100,000 a year juggling swords in the circus, you will have no problem getting pre-qualified but the number generated will be conditional on you backing up this claim with proof.
To get pre-approved, you will need to actually submit the proof – the loan amount is still conditional, but pre-approval serves as a stamp of approval from the lender or mortgage broker.
Pre-qualification is an informal designation that is primarily used to provide a rough, unverified estimate of your potential loan. The loan generated is 100% conditional on your information being proven accurate.
Pre-approval, on the other hand, relies on verified data like credit checks and tax statements. The loan is still conditional, but it is no longer a rough estimate. When giving pre-approval, mortgage lenders do a significant portion of the leg work required to originate the loan.
Mortgage pre-approval includes interest rate information, down payment requirements, and a credit check. The process requires you to submit a mortgage application and may even require you to pay a fee. You are walking the approval process right up to the home appraisal stage.
As such, mortgage pre-approval takes considerably longer than mortgage pre-qualification, but a pre-approval letter also carries substantially more weight when submitting offers.
Mortgage Pre-Qualification vs Pre-Approval – Final Thoughts
Mortgage pre-qualification and mortgage pre-approval are both useful when buying a home.
Pre-qualification is great for identifying your budget and discovering what you can afford. When you’re closer to making an offer, it’s a good idea to get pre-approved as this will make things much smoother.