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Are You Pre-Qualified? Pre-Approved? Or Just Pre-tty Confused?!

Are You Pre-Qualified? Pre-Approved? Or Just Pre-tty Confused?!

Ok, future homeowners, you didn’t need that gregarious groundhog to tell you that the spring home-buying season is just around the corner, right?! But, while you may not have needed a rodent to prepare you for spring’s arrival, you may need a little real estate savvy to prepare you for your upcoming home purchase!

And, that’s where we come in. If you think the home-buying process can be confusing, allow us to introduce you to the mortgage approval process. Today, we’re tackling two commonly confused financial terms that carry incredibly different meanings when it comes to mortgages: Pre-Qualification vs. Pre-Approval.

Mortgage Pre-Qualification: It’s kind of like a lender’s version of what every prospective home-buyer tries to do on their own when they decide they’re ready to purchase a home; they scour the internet to find a clue as to how much home they’ll be able to afford. Though they don’t simply use an online calculator, banks and lenders can pre-qualify buyers with very little financial information. Typically, all a lender will need to know about is a buyer’s income, debts and any assets. With just that information, they’ll work up a mortgage amount that the buyer is qualified to borrow.

However, it is important to note that a pre-qualification is not a guaranteed amount, but simply gives buyers an expectation for what they may be able to afford once they begin to browse homes that are for sale. Buyers may also use their pre-qualification amount to discuss what mortgage options they may qualify for with a particular lender.

Now, there is something of a drawback when it comes to pre-qualification. It’s simply the very first step in the mortgage approval process. If you haven’t guessed already, our use of phrases like “not guaranteed” and “may qualify for” is a big distinguisher between pre-qualification and pre-approval. In fact, once prospective buyers are pre-qualified, many move on to seek pre-approval as a second step in obtaining a mortgage.

Mortgage Pre-Approval : It takes away the uncertainties that the pre-qualification process can bring, but also requires buyers to put in a bit more effort. To gain pre-approval, prospective buyers begin by completing a mortgage application. They also supply their lender with financial figures like their income, debts and assets; but, lenders now will dig for even more financial information than just that; and, yes, that does refer to credit history and current credit score!

Armed with all of this financial information, banks and lenders are able to give potential home buyers an exact figure – in writing – of what they will be allowed to borrow – pending their financial situation does not change prior to them finding a home, making an offer on it and going to close.

In a way, a home buyer that is browsing homes with a pre-approval letter is carrying around a golden ticket. Pre-approved buyers can show sellers just how serious they are about making an offer on a home. Frankly, a pre-approved buyer is an attractive buyer to pretty much every seller.  

So, what is the bottom line when it comes to mortgage pre-qualification versus mortgage preapproval? With pre-qualification, you’re all talk. If you’ve got mortgage pre-approval, you’ve got a paper trail from your bank or lender to back up your word!

Though it is obvious that mortgage pre-qualification and mortgage pre-approval are not the same thing, they do have one big thing in common – neither option is the final step in the mortgage approval process! Mortgage pre-qualification and mortgage pre-approval are helpful to have once a buyer begins browsing homes, but for that final approval, prospective buyers must actually select a home!

 

This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.