Pre-approval or pre-qualification is the first step in your home financing process. While both can provide a home seller with an estimate of your purchasing power, one carries more weight than the other.
Pre-Qualification
A pre-qualification is an assessment of your purchasing power based on the information you provide when you apply for a loan. The lender reviews the information and furnishes an estimate of the loan amount you can expect to receive. While a pre-qualification is a great way to get an estimate of your purchasing power, it’s important to remember that the details outlined are not set in stone. Because the lender is basing the pre-qualification on information that you provided, the information reflected could adjust when the time comes for you to complete your mortgage application and provide financial documents.
Pre-Approval
If you’ve been pre-qualified, a pre-approval would be the next step in your home financing journey. However, buyers can choose to get pre-approved without getting pre-qualified. Unlike a pre-qualification, a pre-approval is a definitive assessment of your purchasing power and outlines the amount you are qualified to borrow along with other important information. It will also give you a better idea of the interest rate you qualify for.
To get pre-approved, you’ll complete a mortgage application and provide documentation to your lender, who will review the documents, pull your credit, and assess your current financial situation. They will then supply a pre-approval letter which you will use to let sellers know that you have been approved to borrow an amount up to or exceeding the listing price of their home.
These days, sellers aren’t only considering offer’s dollar amount; they are also looking for a reliable buyer who can move through the home financing process quickly. Because a pre-approval reflects a definitive statement of purchasing power, a seller will see a pre-approval as a stronger statement in favor of a buyer. While a pre-qualification gives the seller an estimate of what kind of buyer you may be, a pre-approval tells them for sure that you have already begun the mortgage process and have been deemed qualified by your lender, meaning you’ll likely be able to move through the process more quickly than someone with just a pre-qualification.
The Final Word
Both a pre-qualification and pre-approval are a great place to start when you’re ready to begin your home financing journey, but a pre-approval is the real deal and communicates to sellers that you’re serious about buying a home. If you’re ready to get serious about home financing, get started today!
