Pre-Qualified vs. Pre-Approved: What Gives You An Advantage When Making an Offer?
If you are looking to buy a house, especially if you’re a first-time home buyer, you’ll likely hear a lot of jargon you might not be familiar with. Between realtors, appraisers, and lenders, you may feel like you are trying to keep up with a whole new language!
Two phrases thrown around will be pre-qualified and pre-approved. They may seem interchangeable, but they mean two completely different things to you during your home buying process. Let’s look at what each of them means, how they differ, and why home buyers should care.
Simple vs. Involved
It’s easier to be pre-qualified for a mortgage loan than to be pre-approved. You only need to provide pay stubs, the amount of debt you carry, and a list of any assets. Your lender will review these to get an idea of your finances and then give you a rough estimate of the amount of money you can borrow to buy a house.
Getting pre-approved is more in-depth. In addition to the pre-qualified steps, you will be required to complete a mortgage application and allow the lender to pull your credit. This gives the lender the information he or she needs to tell you more specifically the amount of money you can obtain for your mortgage loan and if you are pre-approved for this amount. You’ll also be able to find out how much interest you will pay on the loan.
Note: While you may be pre-approved for a specific amount, the final approval is still subject to specifics on the home you choose, such as the home appraisal.
Which One Holds More Weight?
While getting pre-qualified offers you a starting point to know what house you can begin looking at in terms of price, getting pre-approved is more specific to the type of mortgage you can attain and if your lender will approve you for the loan. Of the two, pre-approval offers you more information that you can use during your shopping period.
Which One Is More Attractive to Sellers?
Getting pre-qualified is more for your information and holds no attraction to the seller. The last thing sellers want to deal with is accepting an offer only to find the buyers can’t get their mortgage approved. This is why getting pre-approved is more attractive than pre-qualified. Pre-approval is the next best thing to being able to pay with cash, which gives you a big advantage over buyers who didn’t obtain one.
The path to buying a home is stressful, so it pays to understand real estate and mortgage language and how it relates back to your situation. Start with a pre-qualification. If it looks good and you decide you are going to move forward in the buying process, go ahead and obtain a pre-approval. This extra step requires a little more work on your part, but it will benefit you during your negotiation with the sellers and may even be the thing that tips the negotiations in your favor!
We’re Here to Help!
If you have questions on the home buying process or would like to discuss becoming pre-approved for a mortgage, call, chat, or visit our mortgage center for more information.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.