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The Difference Between Pre-Approval and Pre-Qualification

For those who are looking to buy a house, there is a process that needs to be completed. This process is important for making sure that someone is in a good financial position to afford a home. After all, lenders do not want to give out a home loan to someone who won’t be able to pay it back.

Many people have heard the terms pre-qualification and pre-approval. They are typically tied to the process of buying a home. There are many people who believe these processes are the same.

While this is a common thought, it is actually incorrect. The two processes are actually different, and it is important to know the differences between the two.

The Pre-Qualification Process Mortgage Calculator

Anyone who is trying to buy a home is going to have to go through the pre-qualification process first. This is the very first step. This is a short analysis that is both free from cost and commitment. It will give someone a good place to start when looking for a home loan.

This can typically be done over the phone with a loan officer; however, this is something that can also be handled in-person. Some of the information that will need to be provided include current debts, the current credit score, and current income (prior income history).

These items are going to be used to calculate how much someone can afford to pay on a monthly basis. Then, this number will be used to determine the maximum loan for which someone can apply.

Look at this as a mortgage calculator. These aren’t set in stone but can be used to give someone a barometer they can use when looking for a home.

The Pre-Approval Process is Different

Once someone has been qualified, the next process is called pre-approval. This process is more involved and will give someone a narrowed mortgage calculator with which to work. In addition to the items from the previous step, there are going to be other items involved as well.

This might include copies of a paystub, bank statements, tax returns, and more. Each lender is going to request something a little bit different. In addition, a credit report is going to be pulled to give the bank a better understanding of someone’s current financial situation.

Finally, the borrower is going to get a letter letting someone know how much they have been approved to borrow. Those who have already been pre-approved when looking for a home are going to have a competitive edge when looking for a house. This letter demonstrates that someone is committed to making a purchase.

Understanding These Processes is Important

These processes are important steps for those who are interested in buying a house. These steps are going to be key to those who are looking to buy the home of their dreams.

It is normal to have questions when going through this process, particularly those who might be buying a house for the first time. This is why there are trained professionals who are willing to lend a helping hand to anyone looking for a home loan.