They sound so close, but they are two different steps in the home-buying process: Pre-Qualification and Pre-Approval. So what’s the difference, and how can you keep ‘em straight?
- First up, pre-qualification. If you’re like us, you’ve used all kinds of online tools and calculators to get a better handle on your finances. A pre-qualification is similar — a quick and easy online or in-person tool to estimate how much you can borrow towards a new home. When complete, the bank or mortgage company will give you a pre-qualification letter with all the details. But remember, a pre-qualification is a gauge, an estimate — a helpful but non-binding tool to assess your readiness to buy.
- Now let’s move on to a pre-approval. Think of a pre-approval as a pre-qualification’s older and more serious brother. A pre-approval isn’t an estimate, but a detailed and verified process that will approve you for an exact loan amount with a specific interest rate. Good for 30-90 days, you can lock in your loan terms and rate at the end if you’ve found the home you want to buy. To get pre-approved, you’ll need to gather some documents: your W-2s, most recent tax return, several months of pay stubs, bank statements, and any other investment account information.
You’ll also complete an official mortgage application and give the lender permission to run a credit report. If you’re thinking about buying a home in the next few months, go ahead and get pre-qualified. Once you’re fully committed and on the hunt, it’s time to make it official and get pre-approved.
If you have other questions about either or want to get the pre-qualification process started, give us a call! We would love to be of assistance!
