Before jumping headfirst into the frenzy of the homebuying process, any prospective homebuyer has a general idea of where they want to live, the style of home they want, and how much house they can afford. And when you start to shop around for mortgage options, you’ll begin to hear the terms pre-approval and pre-qualification.
The terms sound interchangeable, but they have different meanings when it comes to the home buying process. Understanding the difference between pre-qualified vs. pre-approved can help decrease the amount of confusion in what is already an overwhelming process.
Here’s what you need to know about the differences between getting pre-qualified and getting pre-approved.
What is pre-qualification?
A pre-qualification is an educated guess on what you can afford for up to a specific loan amount. Why is it only a guess? Because it’s based on your credit score, your annual income, and what you verbally tell your lender about your finances. Even if you are 100% truthful, it doesn’t show your whole financial picture.
If you’re casually shopping for homes, a mortgage pre-qualification is a good starting point. However, don’t consider it as your guaranteed approval amount.
What is pre-approval?
A pre-approval is the actual mortgage amount you qualify for and realistically afford. This amount is based on a thorough examination of your credit history and actual financial documentation (i.e., bank statements, W-2s, retirement accounts). A mortgage pre-approval is an underwritten estimate of how much home you can afford and how much debt you can take on. Thus, it carries more weight than a pre-qualification letter.
Once your lender has determined how much they’re willing to loan you, you’ll receive a pre-approval letter indicating that amount. Both real estate agents and sellers prefer working with pre-approved buyers; it shows that you’re committed to buying a home and have the backing to make good on any offer (within the pre-approved amount). Not only does a pre-approval save you time, but it’s also a great bargaining tool when you’re buying a home in today’s competitive market.
While a pre-qualification will have you thinking about your options, a pre-approval actually tells you how much home you can afford. Fortunately, you don’t have to choose one or the other! When you start house hunting, you can get pre-qualified; and then get pre-approved as you get more serious about buying a home.
When you’re looking for an outstanding resource for mortgage financing, look no further than Pacor Mortgage! Our 33 years of experience is what makes us the optimal choice for your mortgage needs. For more information about our services or to schedule an appointment with us, call us at 773-881-7744 or fill out the contact form on our website!
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