The difference between pre-approval and pre-qualification
If you’re considering buying a home, it’s helpful to understand that pre-approval is not the same as pre-qualification. While they’re both levels of approval, there are key differences between them.
Simple definitions of pre-approval and pre-qualification
Pre-qualification is used as an informal way to get a ballpark figure of how much you can afford to spend on a home. Pre-approval is a conditional written commitment with the maximum loan amount you’re pre-approved to borrow. Think of pre-qualification as a helpful tool when considering buying a home and pre-approval as an important step in the homebuying process.
Getting pre-qualified for a mortgage
Pre-qualification is meant to help you decide if you’d like to move forward with your loan application. You’ll talk with your loan officer about your finances to determine options and estimate your down payment and monthly payments. You’ll also get an estimate of how much home you can afford.
How long does pre-qualification take?
If you’re thinking about buying a home but are unsure if you’re financially ready, pre-qualification can be done quickly online. After gathering basic financial information such as your total monthly income before taxes and your total monthly debt payments, getting pre-qualified for a mortgage only takes a few minutes. In addition, pre-qualification can be done with a loan officer in person or over the phone.
Getting pre-approved for a mortgage
During the pre-approval process, you’ll fill out a loan application. Then your documentation is sent to processing, which allows your lender to provide you with a conditional written commitment that includes a maximum loan amount. Pre-approval gives you direction on what homes you may be able to afford, as well as how much you should save for a down payment. With this information, you can confidently start shopping for your home. In addition, a pre-approval letter gives a home seller proof that you can purchase their home, so they’ll take your offer more seriously.
The number you get from the pre-approval process tells you the maximum payment amount you can expect to borrow from your lender. However, to understand how that translates to potential homes you can afford, you need to factor in associated costs like closing costs, taxes, insurance, HOA fees, moving expenses and more. Learn more about how much to save before buying a home .
How long does pre-approval take?
Unlike pre-qualification, getting a pre-approval letter is a formal process that involves submitting supporting documents to your loan officer or applying online. The length of time that it takes to get a pre-approval letter varies. However, your loan officer can provide a timeline and let you know the application requirements. By providing complete financial documentation and responding quickly to requests, you’ll reduce the chance of delays during this stage of the process.
Understanding the differences between pre-qualification and pre-approval
Although you may hear the two terms used interchangeably, there are significant differences between pre-qualification and pre-approval.
|Useful if you’re unsure if you’re financially ready to buy a home||Helpful if you’re ready to start shopping for a home|
|No hard credit inquiry with this informal process||A hard credit inquiry is done to determine whether you qualify for a mortgage|
|Self-reported and requires no documentation||Involves submitting documentation and a loan application|
|Most sellers prefer a pre-approval letter||May be required when submitting an offer on a home|
|Provides a general idea of how much home you can afford||Specifies a maximum amount of exactly how much a lender will lend you|
|Helps you decide if you’d like to move forward with pre-approval||Gives sellers confidence that you’re a serious buyer|
Let’s get you home
If you’re unsure if you’re financially ready to buy a home, pre-qualification is a great place to start. You’ll learn about different mortgage options and down payment requirements based on your budget. However, you don’t have to get pre-qualified first. If you’re ready to start home shopping and are seriously considering buying, it’s time to get pre-approved.
From pre-approval to closing, Guild loan officers are here to guide you through your homebuying journey. Connect with an experienced loan officer to get started today.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.