Difference Between Pre-qualification and Pre-approval?
Pre-qualification and pre-approval are two very common terms used the mortgage and real estate industry. When applying for a new home loan, knowing the difference between these two terms can save you a lot of time, money and energy.
Pre-qualification is an unofficial estimate of how much house you can afford. A loan officer will make an educated guess about your ability to buy a home based on your verbal or written disclosure of your income, finances, and credit history. Lenders will not generally pull your credit report during this evaluation pre-qualification process. They will calculate your debt-to-income ratio and write-up a pre-qualification letter stating how much you should be able to borrow. This process is usually free, but it does not give you any real credibility with home sellers. The pre-qualification is based on vague or verbal figures you provide and does not take into account all financial factors. The main benefit of pre-qualification is getting a general idea of how much you can afford. As long as you are honest with your financial information, a pre-qual letter will provide you with ball park figure of how much house you can afford, which will allow you to start your home search.
A Mortgage Pre-approval, on the other hand, really carries a lot of weight in the mortgage and real estate industry. In order to be pre-approved for a loan you must sit down with your preferred lender and provide them with documents such as tax returns, bank statements, and provide them with permission to review your credit history. If you are self-employed and file a 1099, you absolutely need to speak to a loan office in person.
Lenders will analyze these docs and other information, including your assets. (The fee for pulling your credit report and scores may be the only cost you pay in the pre-approval process.) A lender will then produce a pre-approval letter that certifies that you have the resources to afford to buy a home for a certain amount. The pre-approval letter will also usually specify the type of loan you are applying for like FHA, Conventional, VA, etc. Home Sellers love buyers who are pre-approved because they have proof that the buyers have financial backing and are prepared to pay the required amount. In real estate hot spots, some sellers won’t even consider offers from buyers without pre-approval letters.
So if you are just in the preliminary stages of finding a home, you may want to fill out the web form below and to get an estimate of your general price range. If you are more serious about buying a home, take the extra -step and arrange for a meeting with one of our lenders partners on njretoday.com. Our preferred lenders can be found within our directory. Select mortgage services from the pull down menu and choose a loan officer.