Thursday, February 21, 2019 / by Dixie Simon
What is the difference and why does it matter to the Seller?
There are similarities. So, what does it mean to get pre-approved vs. getting pre-qualified for a mortgage, and what’s the difference between the two?
Things that are similar:
Mortgage pre-approval and mortgage pre-qualification have the same benefits for anyone considering purchasing a home with a mortgage:
Both help estimate the loan amount you will likely qualify for. This is helpful in your home search, so you are not shopping for the home of your dreams only to find out that is totally out of your financial ballpark. It also helps narrow down your search and therefore time spent in search of that perfect new home.
Regardless of whether you have a pre-approval or pre-qualification letter, both can show sellers that you are a serious contender when submitting an offer. However, for a Seller to confidently accept your offer, they’ll want to know that you’ll be approved for a mortgage and home sale will close. A pre-approval letter submitted at the time of your offer can demonstrate that you have a good chance of being approved for the amount that you have offered on the home.
Many sellers will even require a pre-approval or pre-qualification letter if you are planning to get a mortgage. If it’s not required by the seller, it can help you stand out against the crowd when comparing to other offers that have been submitted. This is especially helpful in our competitive market that we are currently experiencing. Plus, most sellers don’t want to waste time on offers that may have no merit to them. It is a lot of time and effort to decide on which offer is the best and the more facts the seller has at their disposal to make a great decision, the better.
So, what exactly is the difference. Many lenders use the words pre-qualified and pre-approved interchangeably. Also, different lenders may have different definitions for each but in general this is how the two may differ.
Pre-qualification is often seen as the first step in the mortgage process and pre-approval is step two. With pre-qualification, you supply an overview of your financial history to the lender, including income, assets, debts, and credit score. The lender reviews this information to give you and estimate of what you might qualify for. This does not require documentation of your financial history and is often just self-reported by you to the lender. On the other hand, pre-approval requires documentation and verification of your income, assets, and debts. It will most often require a credit check which will show up on your credit report.
Which one is best?
Since the terms mortgage pre-qualification and mortgage pre-approval are used interchangeably it is often hard to know which one you really need. It depends on how your lender defines this service and it depends on if you want a credit check or not. Then find out from your real estate agent which version has more credibility in your market. This way, when it comes time to make your offer, you’ll have what you need to give to the sellers being confident that you will be approved for the loan.