Mortgage Pre-Approval Vs. Pre-Qualified: What is the difference?
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Pre-Approval Vs. Pre-Qualification
What you should know….
Finding the perfect home can be daunting. There are so many things to consider from the home itself, what the neighborhood is like, to what the city or town is like.
Plus, you’re trying to do all of this home buying stuff while working, living your life, and figuring out how you’ll transition from where you’re currently living, to your new home.
So when you DO find the home, imagine what it would feel like to miss out on it because it took too long to prepare your offer. Instead of hearing that your offer was accepted you hear “We’ve accepted a different offer.”
I’ve seen it happen more than it should and it’s all because home buyers aren’t taking the time to prepare to actually look for their home.
Oftentimes when you’re ready to purchase a home most people will begin by scrolling real estate website and finding homes to visit. If you’re smart you’ll find a great realtor who will advise them.
The fact that you’re reading this article means you ARE smart and you ARE preparing to look for your home. But there’s one vital step that every person who wants to buy a home should do before that very first lockbox is opened up:
Start the pre-approval process.
It’s quite simple and could be the one thing you do that makes all the difference in hearing those lovely words from the seller “Offer Accepted.”
Here are some commonly asked questions about this process.
What is the difference between pre-qualified and pre-approval?
Pre-qualified is the step before a pre-approval. This is when you bring your finances to a bank and, without digging too deep, the bank lets you know how much you might be able to get a loan for. But it’s not a guarantee, it’s just a baseline and it’s established entirely on what you’ve shared for your financial picture.
Pre-Approval is a more formal step where the bank require a full mortgage application and your lender will do an extensive financial review, including a credit check, verification of income and other loan payments. You will also need to provide an estimate of the down payment you’ll be able to make.
How much does a pre-qualification cost?
Pre-qualifications are free, they don’t require a credit check and a lender will be able to give you a pre-qualification letter stating that you are eligible to receive a mortgage up to a certain amount based on the information you provided on the pre-qualification application.
How long does it take to get a pre-qualification letter?
This process takes one to three days and most lenders will provide a letter that is good for 90 days.
NOTE: a pre-qualification letter does NOT guarantee you will receive a mortgage loan, it just begins the process and helps to show home sellers that you’re serious about your offer.
What is a pre-approval letter?
A pre-approval letter is a conditional letter from a bank and based on the information provided at the time of the pre-approval and again, is not a guarantee. Having a letter with an exact loan amount allows the buyer to look for homes at that amount or lower with confidence that once their offer is accepted, the loan will be approved.
Many buyers will hold off on the pre-approval process because there is a fee for the application and most pre-approval letters are only good for 90 days which means if you don’t find a home and make an offer in that timeframe, you’ll need to repeat the application process and pay the fee again.
How long does a pre-approval letter take?
As long as you have all your financial documents prepared a pre-approval letter can be ready in minutes or up to 2 days. Typically, if you’ve already gone through the pre-qualification process the only thing that needs to be provided to the bank for a pre-approval letter are the price of the home you want to make an offer on, re-submit proof of your down payment and current assets, and your personal identification documents such as your social security card and drivers license.
How long is a pre-approval letter good for?
Most institutions will offer a pre-approval letter that is good for 90 days. The reason a pre-approval letter doesn’t last longer is because of the fast changing financial market and how quickly your own financial situation could change.
How do I get pre-approved for a home loan?
Step one: ask your realtor for mortgage broker or lender recommendations.
Set up an appointment with a loan specialist.
Gather your documentation: you’ll need proof of income (current paystubs and past tax returns), good credit, verification of employment (if you’re self employed you’ll need to provide up to 2 years of tax returns with supporting documentation to show your income), proof of your downpayment, proof of other assets like savings accounts and investment statements, drivers license, social security card.
Approval of you loan is conditional based on what the bank finds in regard to your financial status.
Ultimately, having a pre-qualification letter in hand when you begin looking for homes is the best advice any real estate professional will give you when you start looking for a new home. Pre-qualifications lead to quick pre-approvals which then results in accepted offers.
When you find the home that you can see yourself living in, the last thing you want is to miss out because you couldn’t get your offer submitted in time. Wouldn’t it be terrible if you followed this process of pre-approval, found your perfect home, but then couldn’t get your offer submitted quickly?
You’ve probably heard this before but it’s really best to have an experience real estate agent on your side. Not only will we provide you advice on how to find that home, but we know how to move quickly when drafting an offer letter and getting your proposal submitted.
If you aren’t sure where to start when it comes to home buying or pre-approvals, let us help you. Our team of Central Florida Real Estate Agents know market well and are prepared to assist you in every step of the process from pre-qualification to closing.