Pre-Qualified vs Pre-Approved
Should I get “Pre-Qualified” or “Pre-Approved” when looking for a home? It is important to know the answer to this question. Both of them share the idea that you want to know how much you can afford, however, one may be better than the other depending on where you are in the homebuying process.
Especially in today’s market, one over the other will give you an advantage. Realtors even prefer and may even require that you are Pre-Approved prior to home showings.
Pre-Qualified: If you are “Pre-Qualified” that means that you went through a quick, initial and less formal phase of figuring out a mortgage. When getting pre-qualified, it is a discussion or description of income, assets, etc. and sometimes a soft check on credit which does not impact your credit score or report on your credit history. The lender will estimate how much you can borrow based on that information. You do not need to show proof of assets or income and you will just get an estimate of the loan amount.
While it sounds quick and easy, the risk of just getting pre-qualified is that once you submit income and asset documentation, your qualifications may change. You don’t want to be stuck under contract on a house only to find out you can only qualify for half the loan amount you need! Pre-qualifications can be risky as none of the numbers are guaranteed.
Pre-Approved: When you get “Pre-Approved”, that means you will get an exact amount you can afford for a home loan. You will need to provide documentation and proof of income, taxes, assets, employment, etc. A lender will also do a hard credit check to verify the information on the loan application you will fill out and see where your credit is at. You will get a preapproval letter to provide sellers when putting in offers to know that you can afford the offer you gave them. This process takes longer, but it gives you an accurate picture of what you can afford and shows sellers you are promising buyers. This is a commitment to grant you a mortgage and it will give you insight on what your interest rate will be as well.
