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Understanding the Difference Between Pre-Qualification and Pre-Approval

Dec 10, 2020

Getting Pre-Qualified or Pre-Approved is the first step for families looking to buy a home. Most Realtors® will not show homes until you have at least been pre-qualified by a trusted mortgage lender. Skipping this process could be a waste of time for both you and the agent. Speaking with a lender will help you understand how much home you can afford, explain the lending process, and clarify any outstanding issues.

 

Pre-Qualification Vs. Pre-Approval

Pre-Qualification

When you start looking for homes, you will meet with a loan officer, and they will look at your initial documentation (income, employment, credit, etc.). This is called a Pre-Qualification and will determine whether moving forward makes sense. This will give you an idea of your closing costs, monthly payment, loan amount, and loan type.
 

Pre-Approval

Think of a Pre-Approval as a much more concrete Pre-Qualification. The documents you submitted have been verified and reviewed by your mortgage specialist. They have approved you conditionally for the loan for which you are applying. While this is enough to shop for homes and submit offers, this does not guarantee you will close on your loan. If any of the following items change, your pre-approval can be revoked, and you may no longer qualify:

  • Employment

  • Credit

  • Income

  • Assets

  • Debt to Income Ratio
     

The other limitation of a Pre-Approval is it does not account for fluctuations in expenses. Appraisal costs, interest rates, homeowner’s insurance, and even fees placed by the government can impact your final/monthly payments. Make sure that you work with an experienced loan officer that can explain this process and account for those factors.

 

Benefits of Being Pre-Approved

Which One Do You Need?

We begin with the pre-qualification process, and depending on your financial situation, credit, and ideal timeline, you can start the pre-approval process.
 

When Should You Think About Working with A Loan Officer?

Whether you want to buy a home next month, next year, or even the year after, speak to a loan officer as soon as possible. When you go through the process of becoming Pre-Approved, borrowers often find hiccups they did not expect. These can include issues with:

  • Credit report

  • Income

  • Job history

  • Ability to afford their monthly payment

  • Lack of funds to cover both down payment and closing costs
     

Working with a loan officer sooner than later will help you uncover any of these potential roadblocks, allowing you to take care of them before they prevent you from buying a home.

Click Here today and schedule a time to speak with one of our mortgage specialists. Together, we can build a strategy to get you into a home and make your homeownership dreams come true.


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