Pre-approval vs Pre-qualification

Pre-approval vs Pre-qualification

Dec 17, 2015 | Buyer Education

In the world of mortgage, it may get confusing navigating the many different terms and labels that will be thrown at you throughout the process. At Home Point Financial, it is important to us that our customers know exactly what status they are at in their mortgage process, which is why we are dedicated to educating customers on the important must-know terms in home buying.

Pre-Approval and Pre-qualification sound very similar, and some companies even use the terms interchangeably. However, they are different, and not knowing the differences may lead to a lot of misunderstanding between lender and buyer.

Getting "Pre-Qualified" for a mortgage is the very first step in the mortgage process. During this process, you will supply the lender with some basic information about your financial standing. This will include your income, debts, and various assets, but no formal credit check. You may get pre-qualified over the phone or online, to give you an idea of the amount you will qualify for. However, this doesn’t mean you have been approved for the loan. Also, the amount in which you are Pre-Qualified is never a sure thing. Think of it as a quick estimate or quote for what you may be loaned.

"Pre-Approval" is the next step in the mortgage process. This is where you will go into a mortgage provider and fill out an application for a loan, and pay an application fee. This application will go much more in-depth than the pre-qualification process. The creditor will perform a financial background check on you (credit rating, assets, debts, etc.) in order to determine the amount you are pre-approved for and at what interest rate. This amount will be given to you in writing, giving you, the new homebuyer, an advantage when looking for homes.

Completing both of these steps is a great idea for potential homebuyers to know how much they can afford before beginning the search for a new home. This allows the homebuyers to commit to a home without having to figure out what they can afford after the fact.

Remember, getting pre-qualified or pre-approved does not mean you are locked into the loan. The final step is loan commitment, which is where you will be given a formal contract from the bank. If you have any questions, contact us to get answers.