You may have heard the terms pre-qualification and pre-approval used interchangeably, but they have different meanings. Here’s the difference between pre-approvals and pre-qualifications and how – and why – to do both.
The Difference Between Mortgage Pre-qualification and Pre-approval
A pre-qualification for a mortgage is the first step you’ll take in the mortgage pre-approval process. Many lenders don’t charge a fee for a pre-qualification, and this is a simple process you can complete online or over the phone.
For a mortgage pre-qualification, your mortgage lender will review your income, debt and assets to give you a pre-qualification letter, which is a high-level estimate of how much they would lend you for a mortgage and the maximum mortgage payment you can afford. Keep in mind that just because you can qualify for a certain mortgage payment doesn’t mean that’s the best way to set your budget.
Getting pre-approved for a home loan helps you determine how much you can truly afford. It takes the guesswork of out knowing how much a home will cost you; and helps sellers take your offer more seriously. A pre-approval for a mortgage is much stronger than getting pre-qualified for a mortgage. This will require your mortgage lender to pull your credit so they can provide a pre-approval letter that provides a more accurate view of your interest rate and the specific amount that you can take out for a mortgage. Pre-approval letters are valid for 60 to 90 days, and most lenders charge a fee.
How to Get Pre-Approved for a Mortgage
This is similar to applying for a mortgage in that you’ll need to provide many of the same documents for a mortgage preapproval:
Upon qualification, your mortgage lender will submit the information and will issue you a pre-approval letter, which will outline the amount that you’re pre-approved for and any conditions that must be met. This is a tentative commitment that you can receive funding from that specific mortgage lender. You will still need to apply for a mortgage when you are ready. Use our mortgage pre-approval calculator to help.
If you are planning to buy a home in Ohio, Michigan or Indiana, getting pre-approved for a home loan is an important first step. Ready to make a move? Contact us and set up a time to chat with a mortgage specialist.