Shopping for a house isn’t like shopping for anything else. You need a solid plan with a firm foundation that includes a pre-qualification and a pre-approval for a home mortgage loan. Wait? Aren’t pre-qualification and pre-approval the same thing? There are some similarities between the two, but it’s important to know the difference between getting pre-qualified and pre-approved when buying a home. Let’s take a closer look.
☑️ How are Being Pre-Qualified and Pre-Approved the Same?
One of the most important things to know when you begin your home search is the price range for the property you can afford. There’s nothing quite as disappointing as finding your dream home and learning that it’s way outside of your target price range when it comes to affordability and a mortgage loan. Both a pre-qualification and a pre-approval will help you pinpoint that target price range for a home.
When you have a letter from a lender that tells a seller that you are pre-qualified or pre-approved, you send a strong message that you are serious about purchasing the home. A seller may take your offer more seriously with this knowledge in mind. While a pre-qualification tells the seller that you stand a pretty good chance of getting the loan needed, a pre-approval sends an even stronger message that you’ve already taken the steps to be approved.
📝 How are a Pre-Qualification and a Pre-Approval Different?
While the major points seem to be the same, there is a slight difference between the two options. Pre-qualification is the first stop along the mortgage loan approval road. The mortgage lender will ask you for basic information about your finances like your income and current debts. They’ll also consider your credit score. They will give you an idea of how much of a mortgage loan you could get if you move forward. However, this is not a documented procedure, meaning you most likely won’t supply any paperwork.
In contrast, when you go in for a pre-approval, you’ll be asked to provide documents and proof of income, assets, debts, and your credit score. The lender runs your credit report and makes a decision based on those factors. Unlike the process of getting the pre-qualification, this part of the mortgage loan approval will create a hard inquiry on your credit report that could impact your credit score.
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⏳ How Long Does a Pre-Approval Last?
The length of time the pre-approval is guaranteed may depend on the type of loan you’re getting, so it’s best to check with the lender to ensure you meet the time limit. In most cases, the pre-approval is good for 30-days from the date of the pre-approval. However, there’s nothing to panic about if you happen to miss your deadline. You’ll just need to revisit the lender and request another pre-approval, which should be fairly straight-forward unless your financial situation has changed.
🤔 Should I Get a Pre-Qualification or Pre-Approval?
While both hold weight when it comes to purchasing a home, the one you wish to secure may be dependent on your situation and the current real estate market for the area. It’s best to consult with your real estate agent to determine which would be best for you. However, you can’t go wrong by getting the ball moving with a pre-qualification.
There are several benefits to being pre-qualified or pre-approved for a home mortgage loan.
- You’ll have a target price range that will help when you’re searching for the perfect home that meets your criteria, and you won’t have to worry about the disappointment of choosing a home outside of that price range.
- You may get better mortgage loan terms.
- You’ll appear as a serious buyer when it comes to placing an offer on a home. A seller may favor your offer over another if it comes down to choosing between yours with a pre-approval and someone else who doesn’t have one.
- Since you’ve already done most of the paperwork involved, you’ll speed up the final approval process.
Buying a home is an exiting adventure that requires a bit of planning, but with the right knowledge on your side, you can make an informed choice about things like getting pre-qualified or pre-approved for a loan.