Pre-Qualified versus Pre-Approved

Is there a difference between the terms Pre-qualified and Pre-approved in the mortgage world? To be Pre-qualified for a mortgage is intended only to give you an estimation of the amount you might qualify to borrow based on the information you provide regarding your assets, liabilities and income. The amount you pre-qualify for is not guaranteed, and before you are approved for a mortgage you have to have your information verified. Pre-qualification can actually be completed by a real estate agent, a mortgage lender, or you can do it yourself using the free online calculators to determine an estimated amount! Pre-approval means that a mortgage lender has looked at the information contained in your credit report, verified your income and has determined that you are qualified to obtain a mortgage. When you are pre-approved for a loan, the lender will be able to give you the maximum amount that you can borrow for a home, the types of mortgage programs you qualify for, and give you an idea of interest rates on each mortgage type.

Should You Pre-Qualify or get Pre-Approved?

It’s really a matter of personal opinion whether you should get pre-qualified or pre-approved prior to starting your home search. For peace of mind and confidence in your search, however, you may want to consider your home buying experience follow this process: 1) Use a free online pre-qualification calculator to get an idea of the amount of money you could obtain. This can be done anonymously since there is no verification of the information you provide, and your credit report is not accessed. If at this stage you learn you do not have sufficient income to purchase a home, you can avoid going further until you have paid down your debts or have increased your income level and save yourself a lot of time and frustration. 2) If you were able to come up with a pre-qualification amount using an online calculator (or by speaking with a real estate agent or lender), you can start browsing property listings to see the type of properties that fall under your qualification amount. If the amount you pre-qualify for only allows for tiny, one story homes or vacant land, and that is not what you intend to purchase, you might want to put off trying to buy a home until your financials change and you can get qualified for a higher amount. 3) If you start browsing properties and find the amount you are pre-qualified for would be enough to purchase the type of property or home you are looking for, you should then speak with a mortgage lending institution to obtain pre-approval for a better idea of the maximum amount of money you would be allowed to borrow for the purchase of your home. While a pre-approval is not an absolute guaranteed amount, you have a good chance that you would be approved for a loan of that amount, because the lender has used your credit history to obtain the amount. 4) When you have found a house you would like to put an offer on, you can then attempt to obtain a loan commitment from the mortgage lender of your choice. In this phase of home buying, the house is appraised to determine it’s actual value, and if both the home and you are approved- you can proceed with the mortgage!