Why Pre-Qualified Is Not The Same As Pre-Approved For A Loan
Many first-time home buyers make the mistake of assuming that when a lender pre-qualifies them, it means they have been pre-approved for a property loan. However, these two terms are miles apart. If you can’t tell why they differ, you’ll find out why and how they differ after reading this article.
Let’s dig deeper to figure out why both terms are different.
What does it mean to be pre-qualified?
One of the first steps in the mortgage process is getting pre-qualified and the process is straight-forward. What you are required to do is provide your lender or a bank with your overall financial data. That data include your debt, income and assets. After assessing your data, your lender will provide an idea of the size of the loan for which you qualify.
Pre-qualification can be done via the internet or on the phone. In many cases, there’s no cost involved. Nonetheless, loan pre-qualification exclude an analysis of your credit report or an in-depth analysis of your ability to buy a home.
The first pre-qualification step makes it possible for you to discuss any needs or goals you may have about your mortgage with your lender. This makes it easier for your lender to explain various mortgage options and recommend the most suitable one for you.
But because pre-qualification does not involve an in-depth analysis and because it depends solely on information you present to the lender, your pre-qualified sum isn’t too dependable. It’s just an indication of the amount you might expect to be approved. As such, being a pre-qualified homebuyer is absolutely different from being a pre-approved homebuyer.
What does it mean to be pre-approved?
Once you’re pre-qualified, the next step is to seek for a pre-approval which is a more thorough process. To trigger the pre-approval process, you’ll be required to complete an official mortgage application (and most likely pay an application fee). Next you’ll provide the lender all the required paperwork to conduct an extensive check on your financial background and present credit rating.
Usually at this point, you will not have found a property yet. As such, any reference to a property on the form should be left blank. Based on the information you provide, the lender can deduce the precise mortgage amount for which you’re approved.
Also, you’ll have a clear idea of the interest rate you will be charged on the loan. Sometimes, you may be able to get a precise rate.
Once you have a pre-approval, you will get a conditional commitment in writing for a precise loan amount. This gives you the perfect chance to hunt for a home at that price or below it. Certainly, this gives you an edge when negotiating with potential sellers. This is because sellers is aware that you’re just a step away from getting an actual mortgage.
Benefits of being pre-qualified and pre-approved
Pre-qualification and pre-approval makes it very clear to you how much home you can afford before you start house hunting. This will save your from shopping for properties that are well beyond your loan.
Also, getting pre-approved for a mortgage makes it easier for you to move swiftly as soon as your find a suitable property. So when you make an offer it won’t be dependent on obtaining a loan. This is one of the many ways being pre-approved can save you valuable time.
In a competitive market, this will give you an edge by letting the seller know that you’re a serious contender. It also makes it impossible for you to lose a preferred property to another buyer who already has financing arranged.
As soon as you find the most suitable property for you, you’ll fill in the proper details and your pre-approval will become a complete application.