If you’re considering buying a home, you must know the lingo, especially as there are so many terms that appear similar but mean very different things. When researching mortgage options, you’re likely to hear about pre-qualified mortgages and pre-approved mortgages. While they sound the same – indeed many people use the terms interchangeably these days – they are drastically different things. Mistaking the two could have disastrous, expensive, or even legal consequences in the worst-case scenario. Fortunately, once you know the difference it’s easy to avoid dangerous pitfalls, allowing you to shop happily for your dream home. So, let’s take a look.
What Does it Mean to be Pre-Qualified?
Getting pre-qualified for a mortgage is generally considered the first step on the road to buying a home. It gives you an idea of what you can afford and is a great help in sifting through your options. To get pre-qualified, you need only give basic information about your financial situation to a lender. This can be done for free either in person, over the phone, or even online. You’ll typically discuss your income, assets, and any debt, but won’t be required to submit a credit report. Using this information, the lender will make a basic evaluation and give an approximation of what kind of mortgage you can afford. Bear in mind, that the lender will not commit to lending you money at this point and is merely providing an estimate.
Getting pre-qualified provides a good opportunity to meet with numerous mortgage lenders and talk about your financial goals. You can get a good feel for the service they offer and discuss a variety of potential options for going forward. It also provides you with a ballpark figure to base your budget on, enabling you to filter out those houses that fall outside your upper limit.
What Does it Mean to be Pre-Approved?
When you know that you’re serious about buying a home, it’s well worth getting pre-approved for a mortgage. This is the next step and it involves the lender carrying out a far deeper analysis of your financial situation and checking your credit report. You’ll be required to fill out an official mortgage application and you’ll typically need to pay a fee.
Once they’ve carried out their checks on your financial background, the lender will detail the specific mortgage amount you qualify for. Pre-approval provides a far more solid figure than the pre-qualification estimates and enables you to carry out more accurate searches within your budget. The lender will then issue a written conditional commitment for an exact loan amount. In the fast-paced world of modern real estate, being ahead of the competition is essential, so as soon as you know you’re serious about buying a new house, get pre-approved. And remember, being pre-qualified is no guarantee of financing, so don’t make an offer without a pre-approved mortgage.
