Mortgage industry terms—there are many and it can be hard to make sense of them, especially when they seem so similar. Pre-qualification and pre-approval are often used interchangeably, but there are some major differences between the two. Both options can be helpful to your Realtor and other mortgage professionals while shopping for a home, but a pre-approval can help you further along your mortgage journey than a pre-qualification. This guide will help break down the benefits of both options.
How Pre-Qualification and Pre-Approval Differ
- Pre-approval gives you a more accurate estimate.
- A pre-approval will give you a much bigger picture of the home you can afford. After you finish the pre-approval process, you will receive a formal letter that states what your budget is. Your pre-approval is usually good for 90-120 days, but can be easily refreshed.
- Pre-approval can jump-start the mortgage process.
- A pre-approval is going to give you documentation on your credit from a hard inquiry, as well as information on your assets, income, and debts. This is usually the first step after applying for a mortgage, so it is very helpful to your mortgage professional if this is already complete.
How Pre-Qualification and Pre-Approval are Similar
1. They can estimate the loan amount you qualify for.
When you first start looking for a home, you will have your own thoughts about how much house you can afford. Getting either a pre-qualification or pre-approval will give you an estimate based on things like income and credit score. From there, you can start to eliminate homes that are too high for your price range and start to look for the home that fits all of your needs including your budget.
2. They can show sellers that you are a serious buyer.
When we are experiencing a seller’s market, which means the housing inventory is low and houses don’t stay in the market for long, it can be important to have a pre-qualification or pre-approval. This will show the seller’s that you have already gone to a mortgage professional and taken the first steps in buying their home. This means you are a more serious buyer, which is a more confident sell for them!
3. They can give you a better chance of getting a loan for the amount you’ve offered the seller.
Getting a pre-qualification or pre-approval means that a professional has taken time to look through your finances to see what you will qualify for. As you continue through the mortgage process, you will receive a loan amount that is not far off from what you have already been approved or qualified for.
You’ll save yourself and others a lot of time and energy by getting pre-approved for home financing. Most real estate agents prefer that you have a letter of pre-approval before starting to shop for a home. The great news is that there is no charge and no commitment to go through our easy online pre-approval process at ruoff.com.