Getting a mortgage usually involves getting pre-qualified or pre-approved for a loan at some stage in the process. Although pre-qualification and pre-approval are both stepping stones to securing a home loan, they are actually quite different, and it’s important to understand the difference between the two. They require different types of information, offer different types of benefits, and are useful in different situations.
Knowing whether you should seek pre-qualification or pre-approval for a loan can make the difference between sealing the deal on your dream home or losing it to another buyer. So read on to understand what both processes entail.
Pre-qualification is often the first step of the mortgage process. When lenders pre-qualify you, they take unverified information about your current financial situation in order to tell you how much you’ll likely be approved for. While some sellers may not take your bid very seriously with pre-qualification, it can be a great starting place and a reality check for you as you get ready to buy a home.
To receive pre-qualification for a loan, you’ll need to provide a lender with some basic information about your finances. The lender will request figures to assess how much you earn on a regular basis, understand what kinds of assets you have, and see how much debt you’ve already accrued.
After you provide these answers, the lender will take this unverified information and use it to determine how much you’re likely to be approved for should you apply for a loan. Since this process is relatively informal, pre-qualifying for a mortgage does not guarantee that you will ultimately be approved for a mortgage for that same amount.
As you can see, pre-qualification is basically a quick and simple estimate of how much you can afford based on your current financials. However, pre-qualifying doesn’t guarantee you’ll get approved for that amount. So why bother getting a loan pre-qualification if it’s not guaranteed?
Speak to your mortgage lender and request to be pre-qualified for a mortgage loan. They’ll ask for information about your income, assets, and debts to get a picture of your current state of finances. Then they’ll tell you how much you’ll pre-qualify for.
Getting pre-approved for a mortgage goes a step beyond pre-qualification in that you need to submit verifiable proof of income, debts, and assets to get approved for a specific loan amount. There are still no absolute guarantees that you’ll be approved for that amount, but it’s more likely than with pre-qualification. To obtain pre-approval, lenders won’t just take your word for it. They’ll require that you show proof and give you a more specific loan amount.
Your lender will request your financial information in the form of pay stubs, bank statements, obligations, tax returns and your credit report. Upon receipt, the lender will review and verify each piece to give you an accurate loan pre-approval amount.
Sellers love getting offers from pre-approved buyers. In fact, if you’re involved in a bidding war against other buyers who are not this far along in the mortgage process, the seller may choose the pre-approved buyer, even if that bid is slightly lower than a competing bid without pre-approval. Here are some of the other benefits of pre-approval:
Contact your lender for mortgage loan pre-approval. They’ll request that you transmit copies of the required documents through a secure portal. Once they receive your information, they’ll review what you’ve sent and verify it. If your lender needs more information or an explanation from you, they’ll ask. When your lender is ready to pre-approve you, they’ll let you know what mortgage terms you can expect if you were ready to apply right now. Getting an online pre-approval is pretty straightforward and can often be accomplished in one day if you have all of your documents handy.
The main distinction for pre-qualification and pre-approval is that they are helpful at different times of your home buying process. If you’re just starting the home buying process, pre-qualification is a great way to get an idea of what you should expect. Without the credit impact and verified information required for pre-approval, pre-qualification will help to save you time by narrowing your housing search to what you’ll likely be able to afford and by preparing you for other steps of the mortgage application process.
If you plan to purchase a home within 90 days, get pre-approved. Mortgage pre-approval is imperative if you’re looking to buy a home in a hot housing market as they often sell quickly and you want to be prepared to take swift action. Since sellers appreciate buyers with pre-approvals in hand, your offer will stand out in a bidding war and you will be able to close more quickly than you would without one.
Whether you’re ready to embark on your home buying journey with mortgage pre-qualification or prepared to obtain mortgage loan pre-approval, contact the professionals at A and N Mortgage. They work with the best mortgage bank in Chicago to help you get pre-qualified or pre-approved for your dream home and their decades of experience will help guide you through these processes as easily and quickly as possible.
Welcome to a better mortgage experience! In just few minutes you can find out what you qualify for and explore multiple loan options and interest rates.
Complete our short and intuitive pre-approval interview to get started.
