Are You Ready? Pre-Qualified or Pre-Approved?
What is mortgage pre-qualification?
Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.
Most often, the pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects
The analysis is based on the information that you have provided, It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.
A pre-qualification is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.
It can be helpful if you are completely unaware what your current financial position will support regarding a mortgage amount and it certainly helps if you are just beginning the process of looking to buy a house.
Think of pre-qualification acts as a dry run of the loan application process. The mortgage lender will use details you provide about your credit, income, assets and debts to arrive at an estimate of how much mortgage you can afford. The whole process may take only minutes or a few hours at most, and is free.
While a "pre-qual" is non-binding to the lender (because the information you provide has not been verified), it does serve as a good indication to potential sellers of your general creditworthiness.
Most sellers won't accept an offer without at least a pre-approval letter, so if you are serious about buying this is the first step towards getting you in your new home.
What is mortgage pre-approval?
A pre-approval letter is the real deal, a statement from a lender that you qualify for a specific mortgage amount based on an underwriter’s review of all of your financial information.
Pre-approval should mean your loan is contingent only on the appraisal of the home you choose, providing that nothing changes in your financial picture before closing.
This makes you nearly as good as a cash buyer and gives you a huge advantage in a competitive market. A pre-approval letter paired with a clean contract without tons of contingencies can sometimes win bidding wars against all-cash offers.
They make your offer reliable and hence more attractive.
In summary: A pre-qualification can be helpful in determining how much a lender is willing to give you and is the least you should have when making an offer. A pre-approval letter will make a much stronger impression on sellers telling them you have the “cash” to back up your offer.
information collected from Lisa-Kaplan Gordon writer for Realtor.com deemed accurate but not guaranteed