An important first step of the home buying process is determining how much you’re able to spend. This number may be based on many factors, but for most people the most important will be how much you can secure for a home loan. As you start investigating which lender is right for you, you’ll undoubtedly hear two similar-sounding phrases over and over: pre-qualified home loan and pre-approved home loan.
So, what’s the difference between being pre-qualified for a home loan and pre-approved for a home loan? Let’s talk about how each can put you in a better position to make an offer on your dream home.
What Does “Pre-Qualification” for a Home Loan Mean?
Getting pre-qualified for a home loan is a fairly simple process. As the borrower, you will work with a mortgage lender, answering questions about your earnings, assets, liabilities, outstanding debts, and investments.
The lender does not verify the information you provide. In fact, you can usually answer the questions over the phone or online. The lender will take the information you’ve provided and do some calculations. If you’re a good candidate for a loan, the lender will inform you how much you qualify for and invite you to apply. At this point, no promises or commitments have been made. Getting pre-qualified for a home loan is meant to give you a clear picture of how much you can afford so that you have a clear picture of your price range.
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What Does “Pre-Approved” for a Home Loan Mean?
Getting pre-approved for a home loan is a similar but a more in-depth process than pre-qualification. You will answer the lender’s questions regarding income, debts, and assets, but this time they’ll pull your credit report and request documentation to verify the information. This may include bank statements, W-2s, 1099s, pay stubs, and prior tax returns.
If everything checks out, the lender will pre-approve you for a mortgage loan. You’ll receive a pre-approval letter, which is valid for a certain amount of time, and clearly states how much you’re approved to borrow and the interest rate you can expect.
Having this pre-approval letter makes the home buying process easier. Sellers often take offers from buyers who are pre-approved more seriously than buyers who aren’t.
Pre-Approved or Pre-Qualified: Which is the Best Choice for You?
The process of buying a home is hard. Home loan pre-approval and home loan pre-qualification are two tools that were created to make it simpler and less stressful. As for which is the right choice for you, it really depends on which stage of the process you’re in.
In fact, you may end up getting both. For example, if you’re in the early stages and just dipping your toe in the market, pre-qualification is quick and easy and can help you narrow the focus of your search. Once you’ve familiarized yourself with the market and you’re waiting to pounce on your dream home as soon as it’s listed, home loan pre-approval gives you the ability to move quickly.
Think about it this way. Pre-qualification is meant for you. Pre-approval is meant for sellers. When you have a pre-approval letter to show a home seller, it tells them that a lending institution is ready to provide the financial resources necessary to make the transaction.
Get Pre-Qualified or Pre-Approved with People’s!
People’s Community Federal Credit Union offers amazing rates and exceptional customer service among its members. When you’re ready to start the mortgage loan application process, turn to us. We’ve been serving the Clark County WA area for over 70 years.
Home Loan Pre-Qualification and Pre-Approval FAQs
When you’re pre-approved, that means the bank has verified all of your documentation and is prepared to offer you a mortgage loan. They’ll give you a letter which can aid your cause when you’re ready to make an offer on a house. However, it’s important to understand that pre-approval doesn’t mean you’ve been approved. The lender will need to re-verify the information when the mortgage is needed. The mortgage can be denied if anything has changed significantly since the information was provided. However, as long as all of the information is the same as what you previously provided, there is an excellent chance it will be approved.
When you get pre-qualified for a house, you learn how much banks are willing to offer you and at what interest rate. This is not a commitment to provide the loan when the time comes. The information is to give you a clear picture of what your price range should be. You must still apply and be approved for the loan.
Without pre-qualification, it can be hard to know how much is available to you. This means you might end up shopping for houses outside of your price range, which can lead to disappointment and wasted time. So although you don’t need to get pre-qualified for a loan before you start looking at homes, we highly recommend it.
Pre-Qualified vs Pre-Approved in Vancouver WA
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