3 minute read
Pre-Approvals vs. Pre-Qualifications
Robert Langston
If you’ve tried buying a house before, then you have probably been told that there is a need to get pre-qualified or preapproved for a mortgage before you begin the search for a property. They’re not wrong on both counts; these steps are integral to the mortgage application processes and need to be completed in time. The problem however, is that most people tend to confuse the two together and use them interchangeably; we’ll be stating the key differences between the two and the role they play in the home buying process.
WHAT EXACTLY IS A PRE-QUALIFICATION?
The first step to take in the home buying process is getting prequalified; it gives you the right estimate of the amount you can loan. A mortgage prequalification is a way to learn how much you can borrow based on your financial information right now as well as the mortgage options open to you so that you can make the right choice to fit your needs and goals. To get prequalified, one usually needs to provide the bank with a complete picture of what their finances look like, including income, additional debts as well as assets.
When you provide this vital information, the bank or lender reviews the information and then gives an estimate of just how much to expect as a loan. There’s no cost involved when getting a pre-qualification, and the whole process is simple and quick; it can usually take place online or on the phone. Remember that getting pre-qualified does not involve credit reports getting analyzed or a comprehensive look into the borrower’s ability to buy a home. This step only provides you with information about your needs and the right mortgage option to provide you with it.
WHAT EXACTLY IS A PRE-APPROVAL?
Getting a pre-approval helps you to confirm if you’re worthy of a loan without a need for a purchase contract. It is the second process in the home buying process and needs the real estate buyer to complete their mortgage application. The lender will then take the time to verify the information received and also perform a credit check to verify your qualification. Once all your information checks out, you would be sent a preapproval letter, which is an offer to get a loan. A preapproval is good for 90 days and will expire if not utilized at the appropriate time.
When you go through the preapproval process, it gives you an idea of the interest rate to expect, and you get to know whether the lender will be giving you the opportunity to lock in an interest rate. Some lenders charge a certain fee when you apply for a pre-approval, and unlike a prequalification, which is simple and free, a pre-approval could cost you hundreds of dollars. A pre-approval gives real estate buyers an advantage in the real estate market because it takes you one step closer to getting yourself a mortgage and buying a home.
HOW LONG DOES A PRE-APPROVAL OR PREQUALIFICATION TAKE?
Both processes play different roles in the home buying processes and, therefore, take different time to complete. Getting pre-qualified is the first process and is pretty quick; it takes less than a day and could easily be completed in just an hour. A pre-approval, on the other hand, takes much longer to complete as more information is needed, including a verification process. Getting a preapproval usually takes much longer and can take up to ten business days or more before the process is completed.
WHICH IS THE RIGHT CHOICE FOR ME?
If you’re buying a home for the very first time, you’re sure to find a pre-qualification quite helpful. It can help you establish a budget and also give you an estimate of how much you can borrow. However, when it gets to making an offer on a home, the value of a preapproval cannot be overestimated. Its value is even more apparent in a competitive market because it gives you an edge and presents to the seller that you’re serious since you have verified your creditworthiness and your finances are in order.
Reference
https://www.bankofamerica.com/mortgage/learn/mortgageprequalification/#:~:text=Unlike%20prequalification%2C%20 preapproval%20is%20a,can%20be%20preapproved%20to%20 borrow. https://www.investopedia.com/articles/basics/07/prequalifiedapproved.asp
