At a glance, getting pre-qualified and getting pre-approved for a mortgage might sound like the same thing. However, the two processes are different and serve different roles in the mortgage application process. Much of the confusion comes from the fact that mortgage lenders will often use the two terms interchangeably, essentially giving them the same meaning where their institution is concerned. In this article, we’ll discuss the differences between mortgage pre-qualification and mortgage pre-approval.
Also, both only apply to applicants who are looking for a first or primary mortgage and not a private or second mortgages.
What is Mortgage Pre-Qualification?
Pre-qualification helps lenders to determine how large a mortgage loan you qualify for before committing to taking out the loan. You provide your financial information to your lender to help them get a clear idea of your finances before they calculate a loan amount that you qualify for. The amount will be determined based upon the financial snap-shot given to the lender. This will also determine interest rates.
Essentially, pre-qualification gives you a solid idea as to how much home you can reasonably afford. It does not carry any weight to help you in the final approval process.
What is Mortgage Pre-Approval?
Like pre-qualification, mortgage pre-approval requires the submission of financial information to help lenders determine how much of a loan you can be approved for through their institution. Borrowers will also be required to submit information to verify their identity, as well as their current residential address. Social security numbers are required for the pre-approval process, as they are necessary for the lender to run what is known as a “hard check.” A hard check is a deep look into your finances and credit history.
One distinct advantage that mortgage pre-approval has over pre-qualification is that it can help strengthen your case when applying for a mortgage loan. Pre-approval carries a lot of weight with lenders and sellers alike, as it shows that you are serious about making this investment and can reasonably be expected to pay back the debt.
Generally speaking, pre-qualification is typically viewed as the first step in the mortgage application process, while pre-approval is the second step. It is worthwhile to obtain both as you venture toward purchasing a home, but keep in mind that pre-approval is what lenders and sellers will look at the most favorably.
Both are useful in letting you know roughly how large a mortgage you can afford, so pre-qualification is a great starting point if you aren’t yet ready to file an application for a mortgage. Once you are ready to move forward, it is time to apply for that coveted pre-approval.