Mortgage Pre-Qualification vs. Pre-Approval
Annual percentage rate. Points. Closing costs. As anyone who has ever applied for a mortgage knows, there sure are a lot of terms thrown at you. Two terms that are often talked about — and confused — are mortgage pre-qualification and pre-approval. Although they sound alike, they are different in many ways.
Pre-Qualification, an Estimate of How Much You Can Afford
Before you begin shopping for a home, it's important to understand how much you can afford. A mortgage pre-qualification will help make that easier. You simply provide a mortgage lender with information about your finances, such as your income, assets, and debt, and they'll let you know the mortgage amount for which you might qualify. Pre-qualifications don't require verification from the lender, so you can get pre-qualified in minutes, usually over the phone or online. The important thing to remember is that a pre-qualification is not a promise of what a lender will lend you; it's simply an estimate based on the unverified information you provided.
Pre-Approval, an Important Step in the Mortgage Process
Unlike a pre-qualification, which is simply an estimate based on information you provide, a pre-approval is a conditional approval that lenders are able to make based on your credit and proof of your financial information. To deliver a pre-approval, a lender will need you to provide information, including:
Proof of income — including pay stubs, tax returns, or W-2s. Proof of assets — including bank and other account statements. Credit — lenders will check your credit score. Proof of employment — a lender will contact your employer to verify you are still employed.
Once you have been pre-approved, a lender will issue you a letter outlining the mortgage amount for which you qualify.
It is important to note that like a pre-qualification, a pre-approval does not constitute a final mortgage approval. It is subject to certain conditions.
Two Tools to Help You Purchase a Home
Though they differ, pre-qualifications and pre-approvals do have something important in common — they are both valuable tools in helping you purchase a home. A pre-qualification can save you time by helping you focus on finding homes in your price range. And when you finally do find a home, a pre-approval can give you a valuable negotiating edge by letting the seller know that you are a serious and qualified buyer.