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While people often use the terms interchangeably, there is a difference as to whether you’re pre-qualified or pre-approved for a mortgage loan. The short answer is: one is more official and means you are further along in the home buying process while the other can give you more clout when making offers.
Almost every guide you read on how to compete in a seller’s market encourages buyers to be pre-qualified. Some real estate agents won’t even begin the home shopping process with you if you haven’t already completed this step.
What is Mortgage Pre-Qualification?
A pre-qualification is based on the information that you, the borrower, provide to the lender. In response, the lender gives you a rough estimate of the amount of loan you qualify for. In this phase of the process, the amount you qualify for is conditional, since the lender won’t be looking at your financial status and history too closely. You will still have to go through the official pre-approval process to secure the loan.
Getting pre-qualified may seem like an unnecessary step on the road to buying a home. Why not just go straight to pre-approval? If you want to be able to act quickly in this competitive market, you may not have the time to complete the pre-approval process when making offers.
Show You Are a Serious Buyer
Most sellers won’t even entertain an offer or consider you a serious buyer without a pre-qualification letter. Also, this part of the process doesn’t cost you anything. You won’t be paying any fees or filling out tedious paperwork.
Perhaps, you’re still in the “browsing” phase of the home-buying process. If so, get pre-qualified. The process is short, and will allow you to act quickly should something come up that strikes your interest.
Why is Getting Pre-Approved Important?
Pre-approval is when the rubber hits the road. Getting approval for your mortgage means a lender has reviewed your financial situation and confirmed your ability to make mortgage payments. Pre-qualification is a good indication of whether or not you can get the desired loan amount, but pre-approval is the official answer.
To be pre-approved for a loan you, the borrower, must complete an official mortgage application, provide requested documentation, and be submitted to a thorough credit and financial background check. Some of the documentation you will be asked to provide includes:
- Income and employment documents, such as tax returns, W-2s, and/or 1099s.
- Asset statements on bank, retirement, and brokerage accounts.
- Monthly debt payments and any real estate debt statements.
- Records of rent payments, divorce, bankruptcy, and/or foreclosure.
During this phase, you will also receive information on interest rates, the actual loan amount you can receive, and the estimate of the down payment required. Becoming pre-approved puts you closer to the end of the process, but be aware your loan journey will not be completed until you actually choose the property you’d like to buy.
We’re Here to Help You Get Pre-Qualified or Pre-Approved
Becoming pre-qualified or pre-approved enables you to shop within your budget and act quickly when you want to make an offer. If you would like to begin the pre-qualification or pre-approval process or have any questions about what it entails, give us a call at 844-6-VA-LOAN or fill out this form.