The Difference Between Being Pre-Qualified and Pre-Approved
Monday Jun 26th, 2023
When you begin the process of searching for a new home, you may come across terms like ""pre-qualified"" and ""pre-approved."" While they may sound similar, these terms actually refer to two different stages in the homebuying process. Understanding the difference between pre-qualification and pre-approval can help you better navigate the homebuying process and ultimately make a more informed decision.
What is Pre-Qualification?
Pre-qualification is typically the first step in the homebuying process. This is when a lender will ask you for basic information about your income, assets, and debts to get a general idea of your financial situation. Based on this information, the lender will provide you with an estimate of how much you may be able to borrow. It's important to note that pre-qualification is not a guarantee of a loan and does not require a credit check.
What is Pre-Approval?
Pre-approval is a more in-depth process that typically takes place after pre-qualification. During pre-approval, a lender will review your credit report, verify your income and employment, and request documentation such as bank statements and tax returns. This process allows the lender to give you a more accurate estimate of how much you can borrow and also shows sellers that you are a serious buyer. Pre-approval is not a guarantee of a loan, but it is a much stronger indication of your ability to secure financing.
Why is Pre-Approval Important?
Pre-approval is important for several reasons. First, it helps you determine your budget and the price range of homes you can afford. It also makes you a more attractive buyer to sellers, as they know that you have already gone through the process of getting pre-approved and are more likely to be able to secure financing. Additionally, pre-approval can help speed up the closing process once you have found a home you want to buy.
Which One Should You Get?
While pre-qualification can give you a general idea of how much you may be able to borrow, pre-approval is a much stronger indication of your ability to secure financing. If you are serious about buying a home, it is generally recommended that you get pre-approved. This will give you a better idea of your budget and make you a more attractive buyer to sellers.
While pre-qualification and pre-approval may sound similar, they are actually two different stages in the homebuying process. Pre-qualification is a basic estimate of how much you may be able to borrow, while pre-approval is a more in-depth process that provides a stronger indication of your ability to secure financing. If you are serious about buying a home, it is recommended that you get pre-approved to help you determine your budget and make you a more attractive buyer to sellers.