The Difference Between Pre-Qualification and Pre-Approval

When it comes to buying a home and applying for a mortgage, there are lots of new terms to learn. If your buyer’s agent has asked you to get pre-qualified, or you’re wondering what the difference is between pre-qualification and pre-approval, this article will help you understand each type of letter and their respective benefits. 

What is Pre-Qualification?

When you come to us to get pre-qualified for a mortgage loan, we take the information you put on your application and assume your listed income and assets are correct. This is why it’s important to be open and honest about your finances during the mortgage application process. That information will come out eventually, so start off on the right foot with a realistic and factual view of your financial situation.

The next step in getting pre-qualified is to have your credit report pulled. Based on your credit history, credit score, and the financial information you provided, we will review with you the loan programs and borrowing amounts you could qualify for. 

The primary benefit of getting prequalified is knowing how much you can afford to spend on a house. Many real estate agents require a prequalification letter before they show you houses because they don’t want to waste time looking at properties above your price range. 

Contact our experienced mortgage lenders to start the pre-qualification process now!

What is Pre-Approval?

While the terms “pre-qualification” and “pre-approval” are often used interchangeably, getting pre-approved for a mortgage loan requires a bit more paperwork and processing. Think of it as a level up from getting pre-qualified.

When you get pre-approved, you need to provide proof of the income and assets listed on your application. This could consist of paystubs, tax returns, financial account statements, etc. Then your application and documents go to our credit underwriters for review and formal approval of your pre-approval letter.

While a pre-qualification letter may be enough for your buyer’s agent, many sellers want to see a pre-approval letter for more proof that you can afford to follow through on the offer you’re making. And when the real estate market is hot, as it is now, and sellers can afford to be picky, a pre-approval letter could be the difference between having your offer accepted or losing out to someone else.

Overall, you can think of a pre-approval letter as a physical for your finances. It involves a review of and health check-up for your:

• Credit history
• Credit score
• Debt-to-income ratio (the percentage of your monthly take-home pay that goes to debt or loan payments)
• Employment history (length of time in your current job)
• Annual income
• Assets (physical property, cash, and investments)
• Liabilities (loan and credit card balances)

Once we have assessed your credit and other factors, we will give you tentative approval for the mortgage loan program of your choice. If going through the pre-approval process reveals a weakness in your finances or you don’t qualify for the loan program and the amount you’re interested in borrowing, we can also advise you on specific steps to take to strengthen your application.

Pre-qualified vs. Pre-approved: What are the Differences?

Now that you understand the differences between getting pre-qualified and pre-approved, you can think of the breakdown as:

• A pre-qualification letter serves as a helpful starting point in your home buying process. It gives you an approximate ceiling for how much you can borrow to buy a house. 
• When you’re ready to make an offer, a pre-approval letter will carry more weight with sellers. It also gives you a head start on the rest of the mortgage application process because you’ve already submitted the initial information.

Still have questions about which one is right for you? Our friendly and knowledgeable lenders will be happy to help—just reach out. 

Why does a lender want a pre-approval or pre-qualification?

Just as sellers want to see a pre-approval letter as proof that you will be able to follow through on your offer, mortgage lenders start with pre-approvals to make sure you’re qualified to take on a mortgage and will be able to repay the loan. Buying a home is the biggest purchase most people will ever make, so it’s a good thing for you and your lender to proceed carefully and check all the necessary boxes. 

Partner with your local mortgage lender!

Locally owned and operated, Town and Country Banc Mortgage Services, Inc. is consistently rated the top housing lender in our market. We offer a variety of home mortgage loans, and our knowledgeable lenders can help you find the best home loan for you. To start the pre-qualification or pre-approval process, contact our local mortgage team or apply today. To learn more about how we can help meet all of your financial needs, our friendly and attentive staff welcomes you to any of our 12 branch locations.

Are you a first-time homebuyer? Check out this Guide To First-Time Homebuyer Programs and “10 Questions To Ask A Mortgage Lender.”