Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference?
Written by Jason Nelson on September 18, 2017
“Pre-qualification” and “pre-approval” are two words that many would-be homebuyers come across when they read about the home-buying process.
To clear up the confusion and help would-be homebuyers determine whether a pre-qualification or a pre-approval best fits their specific situation, let’s look at the differences between these two terms and the advantages associated with getting pre-qualified and pre-approved for a mortgage.
Pre-qualification: Pre-qualification is typically the first step in the mortgage process. To get pre-qualified, a potential borrower needs to provide basic information about his or her income, assets and debt.
After evaluating the creditworthiness of the applicant, the loan originator will decide whether or not the person is eligible for a mortgage and provide an estimate of the maximum mortgage amount the borrower can afford. At that stage, the mortgage broker will also pinpoint the mortgage programs an applicant may qualify for.
Pre-approval: To get pre-approved for a mortgage, a potential homebuyer needs to submit a mortgage application. The mortgage broker will review the application, check the credit report, credit score, income, assets and financial obligations of the applicant.
If the applicant qualifies for a specific mortgage, the mortgage broker will issue a conditional commitment in writing that specifies the mortgage amount for which the borrower is approved and the interest rate that will be charged. Once the homebuyer has the pre-approval letter, he or she can start looking for a piece of property in the price range specified.
However, getting pre-qualified or pre-approved for a mortgage doesn’t constitute a loan approval nor does it guarantee the mortgage amount indicated – that’s because the amount is an approximation, not a promise. To improve their chances of getting the mortgage amount mentioned, applicants must make sure that their financial situation remains unchanged until the closing.
As pre-qualification and pre-approval are two different things, a homebuyer who wants to buy a home as soon as possible should get pre-approved even if he or she has a pre-qualification letter.
Mortgage pre-qualification and pre-approval provide a series of advantages, as follows:
- Indicate the amount mortgage brokers are willing to lend – Potential homebuyers who know how much house they can afford will be able to focus exclusively on homes in a particular price range. Thus, they won’t waste their time looking at more expensive properties.
- Get homebuyers one step closer to their dream homes – Most sellers prefer buyers who have financing arranged, and therefore can move quickly after they make an offer. As pre-approvals get borrowers halfway through the mortgage process, getting pre-approved is key to successful home-buying.
- Allow borrowers to lock-in interest rates – Depending on the terms and conditions set forth by mortgage brokers, pre-approval letters can include a lock-in rate available for a specific time period.
Whether you’re looking for home financing or refinancing options, North Florida Mortgage can help you every step of the way. Please call our office today at (904)-389-4635 and our professionals will be happy to assist you in choosing the right financing alternative for your situation.