If you’ve ever looked into financing a new home, you’ve probably come across the terms pre-approval and pre-qualification. It’s important to understand the differences between these two terms and how they will affect your financing.
What is Pre-Qualification?
Pre-qualification is the initial step in the mortgage process, and it’s generally fairly simple. You’ll give the bank a picture of your finances, including debt, income and assets and the lender will give you an idea of the size of the mortgage for which you qualify.
Pre-qualification can be done over the phone or even online in just a few minutes and there is usually no cost involved. It’s important to understand, however, that pre-qualification is not a sure thing. Its jut an estimate, not an approval. And, it might not carry the same weight as the pre-approval.
What is Pre-Approval?
The pre-approval process is much more involved. To start, you’ll need to complete a mortgage application and provide necessary documentation for your lender to perform an extensive check on your financial background and credit rating.
When you are pre-approved, you will receive a conditional commitment in writing for an exact loan amount. This will also indicate to the seller that you are one step closer to securing your mortgage.
Why Do Both?
You might be asking yourself what the benefit is of going through both of these steps. The pre-qualification will help give you an idea of the kind of house you can afford right away and the pre-approval will give you more to offer a potential seller. For a similar article, read here