Difference Between a Pre-Qualification and a Pre-Approval for a Mortgage
Having been a Burlington mortgage broker for many years, I’ve helped many home buyers clear up the confusion and myths that come with the territory. One issue I see a lot is confusion regarding pre-approval and pre-qualification, and there is a big difference between the two.
What The Two Do Have In Common
There are a few similarities between a pre-approval and pre-qualification for a mortgage. They will both assist you in getting an estimate of the loan amount you can qualify for. The benefit of this is that you can narrow down your home search to the homes that fit into your budget.
Both a pre-qualification and a pre-approval show that you are serious about buying yourself a home and that you have a likely chance of being approved for the mortgage amount given. They also give you a bit of a competitive edge in the real estate market. This is where the similarities end,
Differences Between the Two
Many lenders will use both of these terms interchangeably but there is a huge difference between them both.
A pre-qualification means that you have gone to a lender, they have had a quick review of your financial information, and then estimate the maximum amount they feel you can afford. The will check your credit score, debts, assets, and income. Basically, not much work goes into the research of your personal financial history, where you will be looking to buy a home, and the loan package itself. In some cases, for a pre-qualification, your credit score may not even be pulled, making the interest rate being offered to you no more than an estimated guess.
Pre-Approval letters carry more weight than a pre-qualification because it shows a higher level of commitment. To be pre-approved for a mortgage your credit history will be pulled, you will need to give them documentation to prove your income, debts, and assets, and then they will do their own analysis to see how much of a risk you may be for a loan. They will then provide you with a letter that states the maximum amount that you qualify for. Your interest rate will also be more accurate because it is specific to your personal circumstances.
One of the main differences between a pre-qualification and pre-approval letter is that the pre-approval letter comes with conditions for approval, or requirements that are laid out by the lender that shows, if you meet these requirements, they are confident you can afford the maximum loan amount they have offered you.
Because of the extra work that goes into a pre-approval, sellers and real estate agents prefer these over a pre-qualification. They are much more effective when it comes to bidding on a home because it shows that you are able to, and more likely to close on the deal. With a pre-qualification, you may submit your offer and then find out that the lender overlooked something important in your credit history that changes things entirely, causing you to lose out on buying that home.
If you’re looking to buy a home and want to avoid any last minute surprises, speak to one of our Burlington mortgage brokers to get a pre-approval today!