Mortgage Prequalification vs. Pre-Approval: What’s the Difference?
If you’re searching for a new home, you’ve probably heard of the terms mortgage prequalification and mortgage pre-approval. Though both have to do with financing a home, the terms are not synonymous and represent different steps in the mortgage application process. Familiarizing yourself with the mortgage application process is important when buying a home.
At Mark Spain Real Estate, our experts offer exclusive industry knowledge to help you make informed decisions throughout the home-buying process. With our help, you can become a mini-expert on the mortgage application process and get a loan that meets your financial needs. Below, we break down the differences between mortgage prequalification and pre-approval to help you through the early stages of your house hunt.
Mortgage Prequalification vs. Pre Approval: What’s the Difference?
What is Mortgage Prequalification?
When a home buyer gets pre-qualified for a mortgage, their lender provides their estimated affordability. The lender makes this estimate based on a buyer’s self-reported financial information without verification. That said, this estimate might not be entirely accurate if the buyer has misreported their financial standings.
Mortgage prequalification is a simple process for home buyers. It requires no formal application or verified financial documents and is a quick and easy process for a lender. Most buyers get pre-qualified to estimate a budget for their home purchase. However, it’s important to note that getting pre-qualified will only give you a ballpark estimate of your affordability rather than a concrete number. Knowing this, you may want to set your budget lower than needed to ensure you don’t overspend on a home.
What is Mortgage Pre-approval?
Mortgage pre-approval is a step above prequalification. When a home buyer gets pre-approved for a mortgage, they receive a written letter specifying their maximum loan amount and confirmed funding from their lender as long as financial conditions remain the same. Pre-approval is much more concrete than prequalification, as lenders require verified financial documentation and credit checks. This information is always required to obtain conditional loan approval.
As a home buyer, skipping the pre-approval process is one of the biggest mistakes you can make. Having a solidified loan pre-approval shows sellers that you’re serious about buying a home and motivates them to consider your offer above other bids. Pre-approval also helps ensure you don’t overspend on a house, as you will receive a concrete loan amount rather than an estimated range. Though the mortgage pre-approval process can take time, it is undoubtedly worth the wait if you’re looking to secure your dream home.
Which is Right for Me?
Choosing to get pre-approved or pre-qualified will depend on where you are in the home-buying process. If you are just embarking on your house hunt and aren’t sure if you’re entirely ready to buy, you should consider prequalification. Going through this process is quicker, has lower stakes, and will give you a good idea of your affordability based on your location and income.
If you’re serious about buying a home, you should definitely start the mortgage pre-approval process. Extending a home offer with a pre-secured loan instills confidence in sellers and makes them consider your offer more seriously. So, if you’re stuck in a bidding war with another buyer, your pre-approved loan might give you the competitive edge needed to win over the seller. This will be especially key if you buy in a competitive housing market!
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