Obtaining a mortgage is an important decision, so you want to ensure it’s the right choice for you. That means determining what you can afford and understanding the distinction between pre-qualification and pre-approval – often used interchangeably; however, it’s essential that you understand their distinctions before applying for a loan.
What Is the Difference Between Mortgage Pre-Qualification and Pre-Approval
Homebuyers can get pre-qualified by providing financial information such as income, debts and credit history to a lender. This process is fast and can be completed online or over the phone with a loan officer.
No guarantee exists that you will be approved for a loan, but it can help you locate homes within your price range and give yourself more confidence when searching for your dream home.
When purchasing a home, the primary distinction between pre-qualification and pre-approval is how a mortgage lender verifies your information. While both can be helpful, a mortgage pre-approval will include an extensive review of both your finances and credit history that a pre-qualification may not.
A pre-approval is a formal, conditional written commitment from a lender that includes an amount you can borrow for a specific home. While the process can be time consuming and require documentation, it’s an effective way to narrow your search if you’re in the market for a house that requires financing.
When making a purchase offer on a home, you have the option to obtain pre-approval letters – an advantage over buyers without them. According to Zillow’s Consumer Housing Trends Report 2022, 89% of sellers prefer offers from those with pre-approval letters.
As a first-time homeowner, it is essential to begin with mortgage prequalification in order to gain insight into your financial situation. It also alerts you of any areas in need of improvement on credit standing or other potential blockers so that you can take steps towards rectifying them before searching for a home.
No matter if you opt for pre-qualification or pre-approval, it is essential that an offer be accepted and a purchase contract signed before your lender can complete the process and approve the loan. Without these documents, you could end up having to renegotiate the price of the home or risk missing out on your opportunity.
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Obtaining pre-approval letters is beneficial for any homebuyer, but especially so if you are a first-time homeowner. This will give you an estimate of what house you can afford and increase your chances of success during negotiations, according to Lea Brown, vice president and mortgage banker at PrivatePlus Mortgage in Atlanta.
Additionally, you’ll have a greater opportunity to negotiate the price of a home since the lender has already assessed your credit and financial situation. They won’t be able to tack on additional fees that could ultimately end up costing you more money in the long run.
