The Difference Between Mortgage Pre-Qualification and Pre-Approval

Have you heard people talking about getting pre-qualified or pre-approved for a mortgage loan? Both terms describe the process of figuring out how much you are likely to get approved to borrow from a lender so you have an idea of how much home you can afford when you’re looking for houses, but there is a little bit of a difference between the two, and it’s important to understand the nuance.

What’s Pre-Qualification?

Pre-qualification is generally considered the first step in a mortgage loan process, and it’s designed to be a quick approval to give you an estimate of how much you can borrow. You will provide the lender with an overview of your financial picture, including your existing debt, your income, and any assets that you own. In return the lender will tell you how much they might be able to loan you to purchase a home. Usually the pre-qualification process can be done over the phone or in person, and sometimes you can do it online as well. It doesn’t usually include an in-depth credit check or financial analysis and is intended as an estimate.

Pre-qualification gives you the chance to talk to your lender about what loan options are available and discuss questions you might have about why the number is lower than you anticipated, or what you can do to increase it if you think you might want to borrow more. It’s also not a guarantee because it’s based only on the information you provide to the lender—if they find something in the in-depth credit check that you did not disclose it could change your ability to get a loan.

What’s Pre-Approval?

Pre-approved is generally a term used for a more in-depth analysis of your financial picture. You get pre-approved by filling out an official mortgage application, paying a fee, and providing the necessary documentation for the lender to do an extensive credit check. The lender then comes back with a specific amount that they are able to lend and you can find a home that fits your budget. You can also get an estimate of the interest rate you will qualify for, and may be able to lock in a rate if you think they might go up.

While both processes will give you an idea of how much you can borrow, and the exact difference between the might seem small, it’s important to understand the differences. The latter, pre-approval, often shows sellers that you are serious about buying a home and that you are one step closer to being able to obtain a loan.

Another advantage of getting pre-approved is the ability to shop for a home that is at or below the range you have been approved for with confidence that you will be able to get a loan to purchase the home. That way you won’t end up wasting time looking at homes and making offers only to find out you can’t get a loan for that amount.

To find out more about pre-qualification and pre-approval and talk to a mortgage lender today about how much you can get in a loan, call Altius Mortgage today.

When and How to Get Prequalified for a Mortgage

When your search for a new home transitions from casually browsing through available listings on a local real estate agent’s website to actually reviewing and visiting open houses, it’s time to start thinking about getting preapproved for a mortgage. The prequalification process is really very simple, but most homeowners don’t realize just how vital this step can be in the process.

Is Prequalification the Same as Preapproval?

Mortgage prequalification is a process that gives you an estimate of approximately how much money you could borrow to purchase a home. This is a little different from a mortgage pre-approval, in that it does not generally involve an official loan application and will not be quite as exact, and it is not an indication that any specific lender has approved you for a specific loan—it is only an estimate based on the information you provide.

Benefits of Prequalification

If you walk into a store in the mall but you don’t bring your wallet, it’s going to be difficult for the salesperson to take seriously your intent to make a purchase. The same is true for homeowners who look at houses without prequalification. Since they have no idea exactly how much they might be able to borrow, these homeowners might be looking at houses that are way above (or below, although usually homeowners look at houses far above their price range) what they will be able to afford to buy.

Another benefit of this process is that you can avoid falling in love with a home that you will ultimately not be able to afford. If you are unaware that you will only likely be approved for a loan in the range of $250,000, you might begin your home search for $350,000 houses. Once you have these homes in mind, the houses available on the market that are actually in your price range might feel like a disappointment compared with what you initially saw.

It is also important to remember that prequalification is simply an estimate of how much you could likely get approved to borrow, which is not necessarily the same as the amount you would be comfortable taking on as mortgage debt, or the payment that you would be able to afford based on your net income and monthly expenses.

Spot Potential Credit Problems

The loan prequalification process also helps you spot financial areas that might become a problem for you when you do plan to apply for a loan, giving you time to sort them out prior to your loan application. This is critical in your quest to get approved for a loan, since even something that dings your credit score by 20 points could significantly impact your ultimate interest rate.

Talk to a lender today about the prequalification process, or visit the Altius Mortgage website to find a simple prequalification calculator.