Many lenders pre-qualify or pre-approve mortgage applicants, which can help considerably in the buying process. While the terms are often used interchangeably, there are some important differences to note.
In general, pre-qualification is considered an initial step in which the applicant provides information on income, assets and debts. The lender may or may not require documentation.
Pre-approval is considered the next step and requires documentation and a credit check. A hard credit inquiry can affect your credit score, and several by different lenders in a short period of time can cause your score to take a significant hit. If you’re thinking about getting pre-qualified or pre-approved for a mortgage, ask if the company will perform a hard credit inquiry and decide if you are willing to risk the potential impact on your score.
Reasons to Get Pre-Qualified or Pre-Approved
Getting pre-qualified or pre-approved for a mortgage before you begin house hunting can help you throughout the whole process. It can save you time and can help you avoid frustration and disappointment later. This is because you can start your search with a reasonable estimate of how much you will be able to borrow. That means you can focus on houses in your price range, rather than falling in love with a house and then finding out that a lender will not loan you enough money to buy it.
If you have found the house of your dreams and want to make an offer, you need to show the owners that you are serious. That means you need to be able to demonstrate that you’re able to qualify for the mortgage you need to buy the house.
Some homeowners may only be willing to sell to buyers who’ve been pre-approved for a mortgage, while others may be willing to accept an offer from buyers who’ve been pre-qualified. In some areas, one is more widely accepted than the other. Ask your real estate agent whether being pre-qualified or pre-approved is more likely to help your chances of having your offer accepted.
Obtaining a Mortgage
Being pre-qualified or pre-approved does not necessarily mean that you’ll be approved for a mortgage by that lender. The company may require additional documentation to process your mortgage application and may learn more facts that influence their decision. Getting pre-qualified or pre-approved by a particular company does not mean that you’re obligated to obtain a mortgage from that lender. You can and should shop around for the best terms.