Before you go out shopping for a mortgage, there are two significant concepts that you need to understand and differentiate as each will determine your position in the real estate market. These are pre-qualification and pre-approval, and in most cases you may confuse the two since they are close in meaning and yet different in implications. Generally, you must be able to tell the difference between pre-qualified and pre-approved if you intend to make the most out of your mortgage experience.
So, what is prequalification?
Before you start looking into a mortgage as a way of financing your purchase of a home, it is important to get an overview of your financial position with respect to what you can or cannot afford in as far as the mortgage is concerned. Most lenders consider one’s income, available assets and debts during a pre-qualification assessment. This means that there are no details involved and thus the outcome is only general, especially considering that most lenders actually conduct these assessments over the phone or by email.
The idea of a prequalification is to give you a rough estimate of what you may be able to get if you apply for a mortgage. You may notice that being the first step towards acquiring that mortgage, prequalification is usually free and it does not require an application. All you have to do is contact your lender and provide some basic information regarding your financial position.
Pre-approval takes a little more to achieve
Unlike prequalification, pre-approval requires more than the self-reported financial position of the client. Here, the lender will require you to possibly pay an application fee and fill out a mortgage application form. Once they have all the necessary information, they are expected to evaluate your ability to pay that mortgage and in most cases this includes an analysis of your credit rating. You will for example not just be expected to list your assets, but rather also to provide documents that prove your ownership of the said assets.
A pre-approval is more of a final look at your financial position before the lender agrees to pay for your home. Consequently, if you have a pre-approval, you are more likely to get a good deal since the seller is assured that you can access the required funding. Sellers are actually more attracted to buyers who have the money at hand or a pre-approval from their lender of choice.
A pre-approval is much more solid than a prequalification because the pre-approval implies that you have the lender’s blessing to find a house within the given price range. If you get a pre-approval, you are more likely to get that mortgage approved, and thus you will be able to buy that property faster and easier compared to when you only have the prequalification. The pre-qualification is only an estimate of what a lender may be willing to offer you in case you apply for a mortgage. In case of any questions regarding mortgages, you can always contact us and we will be thrilled to engage you with our ideas and solutions.