What is the difference between pre-qualification and pre-approval?
Pre-qualification: A process where you supply information to the lender in regard to your employment history, current income, current monthly debts and the amount of your assets to close. It may also include the contents of a basic credit report. No information is verified nor is it reviewed by an underwriter. A pre-qualification will establish a monthly payment you are qualified for, assuming your information is correct and verifiable.
Pre-approval: You can be pre-approved for a loan by completing a loan application and supplying the lender with tax records, pay stubs and bank statements to verify your income and debts. Other documents may be necessary. These items, along with a credit report, will be reviewed by an underwriter and the mortgage approved subject to an acceptable appraisal on the property you want to purchase. A pre-approval can make your offer on a home more enticing to the seller.
What does this mean to you?
Getting pre-qualified and then pre-approved is beneficial to all parties of a real estate transaction. The most important beneficiary is you, the Buyer. A pre-qualification will answer many questions. “What monthly payment do I qualify for?” “What mortgage size equals the monthly payment I would like?” “What costs are involved in getting a mortgage?” These questions and more will be answered. It is the best way to get a clear sense of the best mortgage direction for you.
Your agent will benefit by being able to work more efficiently for you by knowing what your financial parameters are. They can devote their time to looking for houses that fit your qualifications and comfort level.
The seller is looking for a buyer who can get a mortgage. Strengthen your bargaining position and get pre-qualified. Let your seller know you have taken the time to speak with a lender and are qualified for the offer you are making.