When you are in the process of buying a home, a pre-qualification and pre-approval are two important terms that refer to different stages in the mortgage process. Here's what you need to know about the differences between pre-qualification and pre-approval:
Pre-Qualification:
Pre-qualification is an informal process where a lender will look at some basic financial information provided by the borrower, such as their income, debt, and assets, and give an estimate of how much money they might be able to borrow. It is typically a quick process that can be done online or over the phone.
Pre-qualification does not involve a credit check or a thorough examination of your financial documents, so it's important to keep in mind that it is only an estimate of what you might be able to afford. It does not guarantee that you will be approved for a loan, and it does not commit the lender to give you a loan.
Pre-Approval:
Pre-approval is a more formal process that involves a thorough examination of your financial documents and credit history. During pre-approval, the lender will typically ask for documentation of your income, assets, and debts, as well as perform a credit check.
Based on this information, the lender will determine how much money they are willing to lend you and give you a pre-approval letter that you can use to show sellers that you are a serious buyer. Pre-approval is more valuable than pre-qualification because it shows that the lender has already reviewed your financial information and is willing to give you a loan.
In summary, pre-qualification is a quick estimate of what you might be able to afford, while pre-approval is a more formal process that involves a thorough examination of your financial documents and credit history. Pre-approval is more valuable than pre-qualification because it shows that the lender has already reviewed your financial information and is willing to give you a loan.