What’s the difference between pre-qualification and pre-approval. The two terms are often used interchangeably, both by homebuyers and by some real estate professionals. However, they have entirely different meanings, and it’s essential to know the difference.
In a nutshell, a mortgage pre-qualification letter gets written when you fill out some basic information to obtain a rate quote. It is often a quick and informal process, and different lenders have different methods of pre-qualifying borrowers. It is ok to shop around and get several pre-qualification letters. The critical point is that it does not represent an actual commitment to lend you money.
On the other hand, a mortgage pre-approval is a lengthy and thorough process, and having a pre-approval letter in your hand can carry a lot of weight when you’re shopping for a home.
From the perspective of both buyers and sellers, the most important thing to know about pre-qualification is that just about anyone can get a pre-qualification for a mortgage.
We don’t want to say that a pre-qualification isn’t useful—quite the opposite. A pre-qualification can be a great way to get an idea of how much you can afford to borrow and is an excellent first step before you start browsing real estate listings. Just remember that a pre-qualification typically isn’t a commitment to lend you money.
A mortgage pre-approval is a complete process. The lender will check your credit and verify your employment history, income, and other assets. In short, the pre-approval process is a mortgage application, only without a specific home attached to the application.
Here’s a sampling of what you may need to submit to a lender (in addition to an application packet) to obtain a pre-approval, but this is by no means an exhaustive list:
A pre-approval represents a commitment from the lender to loan you money. Pre-qualification does not.
You may wonder if you shopping around getting pre-approval letters won’t hurt your credit score? There’s a special rule in the FICO credit scoring formula that encourages rate-shopping. Specifically, any mortgage applications you make within a “normal shopping period” — generally defined as two weeks — will count as a single credit inquiry for scoring purposes. In other words, whether you apply for pre-approval with one, two, five, or 30 mortgage lenders, it will have the same impact on your credit score.
As investors, we are in business to make a modest profit on any deal. However, we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Instead, we offer the simple truth about your home and how we can help you sell it fast.
Give us a ring. We would love to help you understand the process and to answer all of your questions. You can reach us at 402 999.0577.