Understanding Pre-Qualification vs. Pre-Approval
There’s plenty of real estate terms used in transactions. Needless to say it can be confusing for buyers and sellers trying to navigate the process. Danielle Sette and Jessi Davidson of Team Sette Davidson at ERA Justin Realty understand. “The home loan process might feel overwhelming and difficult to understand. You’ve probably heard that you should pre-qualify or be pre-approved for a mortgage if you’re looking to buy a property. These are two key steps in the mortgage application process. Some people use these terms interchangeably, but there are differences that every homebuyer should understand,” states Sette. Danielle and Jessi break down the difference between the two.
The first step in obtaining a home loan is to meet with a lender and get pre-qualified. Davidson says, “The pre-qualification process is based on consumer-submitted data. The lender will review with the buyer their financial situation and discuss income, job stability, debt and credit.” Pre-qualification can be done over the phone or online, and there’s usually no cost involved. Once they have performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification Letter to the potential buyer, which will identify how much you can expect to borrow, the maximum sales price, any down payment requirements and basic terms of the loan, such as interest rate.
The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a lender who is vouching for their ability to obtain a loan.
Your pre-qualified amount isn’t a sure thing, because it’s based only on the information you’ve provided. It’s just the amount for which you might be approved. A pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer, who has been more thoroughly investigated.
Getting pre-approved is the next step, and it’s much more involved. You must complete an official mortgage application to be pre-approved, and you must supply the lender with all the necessary documentation, such as pay stubs, bank statements, assets, etc, to perform an extensive check on your financial background and current credit rating. The lender can pre-approve you for a mortgage up to a specified amount after reviewing your finances. You’ll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate.
You’ll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. A Pre-Approval letter is almost like shopping with cash; the only remaining piece of the puzzle is the property you are buying.
Danielle Sette and Jessi Davidson are REALTOR Sales Associates with ERA Justin Realty, both ready to discuss your home-buying questions and needs. To reach either of them, or any of our experienced Sales Professionals, call 201.939.7500 or stop by our office located at 118 Jackson Avenue in Rutherford.