Getting approved for a mortgage can be overwhelming. Some of the terms seem somewhat misleading. If you are pre-qualified, does that mean you are pre-approved? What exactly does pre-approved mean? Mortgage approval is a complex, confusing process. Understanding the difference between pre-qualification and pre-approval is crucial when shopping for a mortgage and being familiar with some of the terms will help.
The Short Answer
A potential lender informs you that you’ve been pre-qualified for a mortgage. What does that mean? Being pre-qualified doesn’t mean you are getting a mortgage, and even if you are pre-approved there’s still no guarantee. However, being pre-approved increases your chances of getting a green light from a lender considerably. As you can see, the difference between the two terms can significantly affect how you pursue finding the right mortgage for you.
When you are Pre-Qualified for a Mortgage
The first step in the mortgage process is the pre-qualification process; this is actually the easy part. You simply provide a lender or bank with preliminary financial information including income, debt, and assets. Once they evaluate your information, the lender will be able to tell you approximately what mortgage amount you are qualified to receive.
Pre-qualification can be done online on the lender’s website, or it can be completed over the phone, usually at no charge. Understand that pre-qualification is only a high level review of your finances. It doesn’t replace an in-depth analysis of your financial situation that includes a review of your credit report, or taking a critical look at how able you are to manage the purchase of a home.
The pre-qualification process still serves a useful purpose. It lays a foundation for your mortgage as you work with your lender to explore your needs and goals. It also gives you a chance to discuss your mortgage options with a lender and get their recommendations on what will best meet your needs.
When you are Pre-Approved for a Mortgage
Pre-approval is the next step in the mortgage process, which is more complex and involves the gathering of more information. There may be an application fee; the pre-approval requires that fill out a mortgage application. You will submit the completed application along with all the required documentation that is necessary for a comprehensive examination of your financial background, and assets, as well as your current credit rating.
It’s smart to get pre-approval early in the buying process, before you have identified property to purchase. It helps you get an idea of not only the amount a lender will commit to, but it also provides you with an approximate monthly payment amount. Most importantly, you’ll know a specific price range for your home shopping adventure that will fit within your budget. The pre-approval process works for you because it hones down your pre-qualification estimate to a more precise mortgage amount for which you are approved. In some cases, you will be able to secure a specific interest rate at this point, or at the very least an idea of the rate you will get.
CENTURY 21 Peak can help you work with the right lenders, connect you to valuable resources, and navigate the mortgage process. Our experienced, committed staff is ready to assist you. Give us a call and find out how we can simplify and help you with your home buying or selling needs and help you navigate the mortgage process.