Pre-Approval or Pre-Qualification? Which Is Right For You?

Pre-Approval or Pre-Qualification? Which Is Right For You?

Getting Pre-Approved or Pre-Qualified: How to PickWhen purchasing a home, many buyers do not have cash for the entire cost, so they must obtain a mortgage loan. As a result, the mortgage company or lender will usually give the home buyer either a mortgage pre-approval and mortgage pre-qualification letter so they can begin their home search.

However, many buyers who are new to the process may or may not be aware of the difference between a mortgage pre-approval and pre-qualification. The differences between these two processes are important and home buyers must be careful to ensure the one they choose will enable them to make the most competitive offer possible. Here's what home buyers need to know.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What Is Mortgage Pre-Qualification Letter?

A mortgage pre-qualification letter is actually the first step in the mortgage application process. In order to become pre-qualified for a mortgage, the buyer must answer certain questions from the lender about his or her finances. These questions can be numerous and will usually be about the buyer's credit history, employment, salary, savings, investments and other assets.

Lenders need this information because it helps them determine whether or not a buyer is eligible for a loan and if so, how much. During the pre-qualification process, lenders don't require home buyers to back up the information with paper documentation. The mortgage prequalification process can even take place over the phone or even on the Internet, by asking a few simple questions. This is why a mortgage pre-qualification is not always a reliable test of the home buyer's ability to obtain a mortgage. After the pre-qualification process is over, the lender may produce a letter for the buyer stating that the buyer is pre-qualified to buy a home and borrow a certain amount.

What Is a Mortgage Pre-Approval?

A mortgage pre-approval is the second step in the mortgage application process. Pre-approval happens when the buyer supplies documentation backing up the questions answered during the pre-qualification process. This is one of the most important steps in the process of applying for a mortgage. While a home buyer may answer the questions in the pre-qualification process to the best of their ability, the documentation either will confirm what was said or may even tell a different story. This could lead to very different results.

As a result, just because a home buyer is pre-qualified doesn't necessarily mean that they will be pre-approved. However, once the buyer is pre-approved, the lender will supply the buyer with a letter confirming pre-approval.

Which One Is Best?

Sellers want to see proof that the Ham Lake home buyer will be able to get a loan when the time comes, so a mortgage pre-approval letter is the closest thing to proof that a buyer can get. Any buyer who is serious about wanting to purchase a home should get pre-approved for a mortgage before searching for homes to buy. Becoming pre-approved for a mortgage before searching for a home, gives the buyer and their real estate agent (as well as home sellers) the confidence and assurance that they can actually buy the home they are searching for.

Can You Get Pre-Approved From Multiple Lenders?

Yes, a home buyer can get pre-approved from multiple lenders at the start of the home buying process. However, the buyer will have to decide fairly early on which lender is the right lender for them. Shopping around for the best interest rate can help the buyer get the lowest mortgage payment for their home loan.

How Can You Get Started With Pre-Qualification and Pre-Approval?

Home buyers can get started with the pre-qualification and pre-approval process by contacting reputable lenders. Home buyers should only work with lenders who can answer their questions thoroughly and who make them feel comfortable.

For more information about getting a home loan, getting pre-qualified and getting pre-approved, home buyers should begin by start contacting lenders. Home buyers who aren't sure which lenders are best may be able to get a referral from their real estate agent.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

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