Don’t set yourself up for disappointment, be sure you understand the difference between being ‘Pre-qualified’ and ‘Pre-approved’ so that when you are ready, you can move quickly on the home of your dreams.
If you are in the market for a new home and are going to rely on mortgage financing to cover some of the purchase cost, you will need to start the application process as soon as possible. Unfortunately, without proper preparation, many buyers get lulled into the mistaken notion that if a lender pre-qualifies them for a mortgage, it means that they have been pre-approved for the home loan. There’s a world of difference between these two terms. Let’s take a quick look at the difference between being ‘pre-qualified’ and ‘pre-approved’ for mortgage financing.
What Does Getting Pre-qualified Mean
The first step in obtaining mortgage financing is to speak with a mortgage professional to get pre-qualified, and it’s generally fairly simple. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. You’ll supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the size of the mortgage for which you qualify.
The initial pre-qualification step allows you to discuss any goals or needs you may have regarding your mortgage with your lender. At this point, a lender can explain your various mortgage options and recommend the type that might be best suited to your situation.
Since pre-qualification is such a quick procedure – and based only on the information you provide to the lender and does not include an analysis of your credit report or an in-depth look at your ability to purchase – your pre-qualified sum is not a sure thing; it’s just the amount for which you might expect to be approved. For this reason, being a pre-qualified buyer doesn’t carry the same weight as being a pre-approved buyer who has been more thoroughly investigated.
What Does Getting Pre-approved Mean
Pre-approval, on the other hand, is a firm commitment to access to a certain level of mortgage financing and is a much more involved process. Your mortgage lender will have you complete an official mortgage application, and require a variety of information to get an idea of your financial situation, your current and future employment, your level of risk and more. Your lender will preform an extensive check on your financial background and current credit rating. From this, the lender can tell you the specific mortgage amount for which you are approved. You’ll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.
With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. This puts you at a huge advantage when dealing with a potential seller, as he or she will know you’re one step closer to obtaining an actual mortgage.
Speed Up The Process By Preparing Beforehand
You can speed up the mortgage process by having all your application paperwork ready before the initial meeting. Gather up your most recent income tax returns, pay stubs and bank statements. If you have investments or other financial assets, document those. You will also want to be up front about any outstanding debts that you are paying off. The more prepared you are, the faster the application and pre-approval process will go.
The Bottom Line
Pre-approved and pre-qualified are not the same thing. Don’t assume that the bank will provide your loan until you have been pre-approved. The benefit of going through both processes – pre-qualification and pre-approval – before you start to look for a home is that you’ll know in advance how much you can afford. This way, you don’t waste time with guessing or looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won’t be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious – and could prevent you from losing the home to another potential buyer who already has financing arranged.
Have you found the home of your dreams? Our team of mortgage professionals is ready to help you finance it. Contact us today at 504-509-4771, or complete the contact form below, and we will be happy to assist you with getting both prequalified and approved for a mortgage.