Because of their similar names and similar purposes, people often use the terms pre-qualification and pre-approval interchangeably. However, there are several key differences between the two terms. Make sure you are aware of these differences as you enter the homebuying process.
Pre-Qualification vs. Pre-Approval
Pre-Qualification is very helpful early in the homebuying process. In fact, it is essentially the first step in securing a mortgage. Pre-qualification allows buyers to get a clear idea of how much money they can expect to borrow for their mortgage. From there, creating a big picture plan for the purchase of a home becomes a lot easier. It is quite easy to get pre-qualified, homebuyers simply provide background financial information to their bank or lender and then wait on the results. From there, you can begin to discuss potential mortgage options and goals with your lender.
Pre-Approval is essentially a more thorough version of pre-qualification. Rather than working with figures that you provide, pre-approval is given based on your income, credit and debt. In addition to completing a mortgage application, your lender will also need proof of employment, assets, identification and credit score.
After receiving pre-approval, you will be ready to make legitimate offers on homes. Your lender will provide an offer in writing at a given interest rate. At this point, you will be able to present this letter to sellers as a sign of your legitimacy as a prospective homebuyer.
Key Differences
- Pre-qualification is based on figures that you provide to your lender. Pre-approval is based on actual figures and documentation.
- Pre-qualifications serves to give you an estimate of what you can borrow. Pre-approval gives you an actual cap to your spending.
- Pre-approval requires an in-depth credit check.
- Pre-qualification does not require the completion a of mortgage application.
- Pre-qualification does not require a down payment estimation whereas pre-approval does.
Clearview Realty Simplifies the Homebuying Process for You
Clearview Realty helps home buyers in Colorado, Florida and California understand the different types of mortgages that are available and provides loans to help people achieve the dream of homeownership. Since the specifics of which mortgage to choose is dependent on a variety of factors, we encourage you to call us for more information and find out which is right for you. Our number is (720) 217-5731, or you can send us a message.