A home loan is more involved than getting a credit card or car loan because mortgages are highly regulated and require paperwork, documentation, and credit analysis.
Key Takeaways
- Pre-qualification is based on conversation and assumptions.
- Pre-approval is based on real data and facts.
- Sellers value pre-approval, not pre-qualification.
What is a Mortgage Pre-Qualification?
Pre-qualified involves supplying a lender with your general financial situation, including debt & income. The lender reviews everything and gives an estimate of how much you may be able to borrow. You can get a pre-qualification over the phone or online and it does not include a credit check. You can expect a pre-qual letter within a day or so.
The pre-qualified amount isn’t a sure thing, because it’s based only on the information you provided. Pre-qualification does not include an analysis of credit reports or an in-depth look at your ability to buy a home. Pre-qualified doesn’t carry the same weight as being Pre-approved.
What is a Mortgage Pre-Approval?
Pre-approval is much more involved and is the definitive answer on your ability to get a loan. You must complete an official mortgage application to get pre-approved.
You will also supply the lender with documentation needed to perform an extensive credit and financial background check. Employed (W-2) workers should expect to provide a pay stub that includes all year-to-date earnings as well as last year’s W-2 . Self-employed (1099) borrowers should expect a 2-year analysis of your business and tax returns.
The lender will then offer pre-approval up to a specified amount. You will add your loan amount plus down payment together to shop for homes at or below that price level. With pre-approval in writing from the lender, your offers to buy a home will be much stronger in the eyes of a seller.
Difference Between Pre-Approval & Pre-Qualification
The difference between a pre-qualification and a pre-approval is that a lender will honor a pre-approval because they have fully evaluated the creditworthiness of the buyer. A simple Pre-Qualification Letter from the lender is not worth the paper it is written on.
Mortgage pre-approvals give buyers power. Mortgage pre-qualifications do not.
Pre-qualifications are based on assumptions. Pre-approval is based on real data and facts.
Original Publish Date: January 27th, 2020
Modified on: February 3rd, 2023
