If you’re in the process of buying a home, you may have heard the terms “Pre-approval” and “ Pre-qualification” and wondered what they mean, how they can benefit you, and what the difference is between the two. Our Folsom mortgage lender team is here to help you understand the differences between the two and why it can help you when it comes time to buying a home.
Similarities Between the Two “Pre’s”
While there are similarities between the two, one of these is better than the other. Both will help show you the estimated mortgage loan amount you can qualify for. Knowing what you can qualify for helps you find a home that fits your budget so you aren’t wasting time looking at homes that might fit. Both options also show sellers that you are committed to buying a home and are more likely to be approved for the amount of the home. However, this is where those similarities end.
Differences Between the Two “Pre’s”
A lot of lenders use these two terms interchangeably. However, there is a difference that makes one of these more beneficial than the other.
Pre-Qualification
With a pre-qualification, a lender will do a quick review of your financial details by checking your credit score, income, assets, and debts. However, less work is put into a pre-qualification and it doesn’t take into account all of your financial details. Sometimes, a lender won’t even look at your credit score, which basically means, you’re being given an estimated guess of what you could qualify for. In some situations, once you start going through the mortgage application process, you will find you qualify for less or more. Pre-qualifications don’t hold as much weight as a pre-approval.
Pre-Approval
With a pre-approval, a lender will look over your financial situation in greater depth. You will need to provide documentation proving your income, assets, debts, and credit in order for the lender to analyze how much of a credit risk you are. Once completed, you are given a letter that shows the amount you have been pre-approved for with a more accurate interest rate. It will also go over the terms and conditions that you must meet when closing comes.
A pre-approval holds more weight because it shows a seller that you are serious about buying a home and that there is a less likely chance of the sale falling through at the last minute. It also means a quicker closing because all of the work has been done in regard to going over your finances. If given the option of choosing a buyer with a pre-approval over someone with a pre-qualification or nothing, the seller will go with the certainty of the pre-approval.
Something to bear in mind during the mortgage application process is to not make any major financial changes before closing. For example, taking on a new line of credit or changing jobs. It will affect your pre-approval and may mean you no longer qualify for the pre-approved amount.
If you have questions regarding pre-approvals and mortgage rates, give our Folsom mortgage lender team a call today!