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! Learn what it means to get pre-approved for a mortgage vs getting pre-qualified.
Two phrases thrown around will be pre-qualified and pre-approved. They may seem the same, but they mean two completely different things to you during your home buying process. Let’s look at what each of them means.
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. Then, they 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. This allows the lender to pull your credit. It gives the lender the information he or she needs to tell you more specifically the amount of money you can borrow for your mortgage loan. This way, they can tell 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?
Getting pre-qualified offers you a starting point to know what price range your new house should be in. Getting pre-approved is more specific to the type of mortgage you can get. It will also tell you if your lender will approve you for the loan. Of the two, pre-approval offers you more information that you can use when you’re looking for a new house.
Which One Is More Attractive to Sellers?
A pre-qualification is more for your information. It does nothing for 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. This gives you a big advantage over buyers who didn’t get one.
The path to buying a home is stressful. 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 are going to move forward in the buying process, go ahead and get 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. Who knows, it 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.