What’s the Difference Between Being Pre-Qualified and Pre-Approved for a Mortgage?

Don’t settle for a pre-qualification when you should be getting a pre-approval.

 

One of the most common misconceptions in the lending industry is that a simple call to a lender will suffice when you want to see how much home you can afford.

If you are just beginning your home search and are curious to see how much you can afford to pay for a house, a pre-qualification will be sufficient. There are many pre-qualification calculators online or loan officers you can speak to for a house-hunting budget. All you need to provide is your current income and employment information, how you plan to fund your down-payment, your address from the last two years, and any liabilities (like credit cards or student loans) you are carrying. Since nothing is verified, you should only expect the pre-qualification amount you receive to be valid until the information you provide changes. A pre-qualification is useful because it’s quick, gives you an idea of where you stand, and it also gives you a chance to interview your potential loan officer to see how quickly they respond and if you want to continue working with them on your loan.

 

A pre-approval, on the other hand, is a little more work for you up front, but will ensure a smoother transaction and fewer surprises down the road. Having a pre-approval also speeds up the closing process. It can be easy to get you to the closing table in less than 30 days with an upfront approval. 

 

You’ll need to provide more thorough financial statements and an authorization to run your credit. A credit check also verifies that there hasn’t been any fraudulent activity on your accounts or anything else that could affect your approval or interest rate options. Your pre-approval will be good for up to 120 days, when your credit will need to be re-run and all of your documents will also need to be updated once you select a home to make an offer on.  

Pre-Qualification

Who Should Get a Pre-qualification?

The Curious, Casual House Hunter

 

What to Provide: (usually verbal)

  •  Current Income Information (for the last 2 years)
  •  Residence Information (for the last 2 years)
  •  The Source of Your Down Payment (cash in bank, gift, etc.)
  •  Any Liabilities & Credit Repayment Information

 

How Long Does a Pre-qualification Last?

Since nothing is verified, it lasts only until the information that was given changes

Pre-Approval

Who Should Get a Pre-approval?

The Serious Home Buyer

 

What to Provide: (documentation)

  •  Bank Statements including down payment source (for the last 2 consecutive months)
  •  One month paystubs,
  •  W-2s (last two years)
  •   If self-employed, last 2 years Federal Returns, all schedules
  •  Authorization to run a credit report

 

How Long Does a Pre-approval Last?

Your pre-approval will be good for up to 120 days, when your credit will need to be re-run and all of your documents will also need to be updated once you select a home to make an offer on.  

It’s important that you are well-informed and guided through the mortgage process so that surprises don’t set you back. Purchasing a home can be a stressful process for some people, but being well-prepared from the beginning and choosing the right partners that really care about your best interests will make all the difference. 

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