If you’re shopping for a new home, it’s smart to get a mortgage lender involved early. But does that mean getting pre-qualified or pre-approved? Knowing the difference can save you from a common homebuyer mistake and possible missed opportunities.
Pre-qualification is easier and comes first for most buyers. Based on debt, income and asset information you provide, the lender recommends the type and amount of mortgage they’ll likely approve for you. The process is quick and generally free, and involves no credit analysis
As a result, the pre-qualification amount is only an estimate of what you might be able to expect. If you’ve overlooked reporting any debts, have overstated income or assets, or have less than excellent credit, you may find out later your approved mortgage amount is less than your pre-qualification
Once you’ve gotten serious in your house hunting, it’s wise to apply for pre-approval and pay the fee it usually requires. Here, you provide information for the lender to confirm and analyze your debt, income and assets, as well as your credit score and report.
With this, the lender can commit on the type and amount of mortgage they’re willing to offer you, as well as the rate. This is conveyed in a conditional commitment letter, which confirms you have financing for homes at or below the approved amount.
If you’re sure you plan to buy, pre-approval offers advantages that are worth the application fee. Not only does it help you avoid wasting time on homes beyond your price range – it can also give you an edge with a seller, as it demonstrates you can move quickly without a contingency to secure financing.
Pre-qualification is a great first step for most home buyers, but as soon as the house hunt becomes serious, pre-approval becomes your next smart move.