Pre-Qualification
Hearing you’re pre-qualified sounds great. But, you still have a long way to go. Rick Hogle, of Supreme Lending, suggests that loan pre-qualification can provide a general idea of the loan amount in which the home buyer might qualify. This way you can start looking at houses and have a more specific idea about how much you can afford before you really take a true look.
During pre-qualification, there is a lot more self-reporting and less paperwork needed because you discuss the overall picture of your finances with a loan officer. They’ll screen you to determine if you’re a good fit for the level of risk their company is willing to take, and you’ll have an opportunity to learn what types of loans that you might qualify for.
Because pre-qualification is easier and faster than pre-approval, it’s no surprise that sellers and agents take buyers more seriously if they’ve been pre-approved.
Pre-Approval
With pre-approval, there is a lot more paperwork, but there is a lot larger and more tangible reward because of the upfront work required. Here’s an example of what you might be expected to provide: pay stubs, bank statements, tax returns, proof of assets, credit history, employment verification, documentation, expenses, etc.
If you pass the lender’s approval process, the loan officer will then agree, under certain conditions, to loan you a specified amount of money. This can feel very uplifting because it allows you to shop with confidence, and the major benefit is that it helps sellers & buyer’s agents take you more seriously.
Because of the verification on top of verification, there is no self-reporting here. While this is on a case by case basis, the length of your approval can last from 3-6 months.
Similarities: Pre-Approval vs Pre-Qualification
- Not a guarantee from a lender
- Helps you shop with confidence
- Provides estimate for a likely loan amount
- Both save time during home search
- Helps you with a more realistic look by only looking at homes in your budget
- Shows sellers and agents you are serious.
Differences: Pre-Approval vs Pre-Qualification
- Not too many differences. But, they are slight.
- In some markets, these terms are interchangeable
- Pre-qualification = General overview of your credit history and bills. Lots of self-reporting.
- Pre-Approval = A significant amount more of documentation and verification. Usually carries more weight when it comes to having an offer you make be taken seriously.
FAQs
What do I need to be careful of?
Mortgage Quizzes – Chances are you’ve seen a quiz on Facebook that says – “The only 5 questions you need to find the right mortgage lender”. These are not only bogus, but they are highly misleading. These are nothing but a marketing trick to get your information, and no matter how you answer the questions, you’ll be routed to the mortgage lender who created the “Quiz” under the guise of highlighting different results based on your unique answers. Oh? You selected answer C. How about Mortgage Lender A. Oh? You selected answer B. How about Mortgage Lender A? You get the picture.
The guise of commitment – Just because a loan offer pre-qualifies or pre-approves you, you don’t owe them anything. Just like you can shop REALTORS® for different rates, lenders are the same. It’s a competitive space, so it’s in your best interest to do your research and weigh your options.
How long does the pre-approval process take?
Angela Cohen, a branch sales manager with Network Home Loans in Lynnwood, WA suggests that it’s typical for this to take 1-2 days.
