Buying a home usually requires getting a mortgage, and the first step in getting a mortgage is getting prequalified. Getting prequalified to buy a home is pretty quick and simple, plus most lenders can prequalify you within 24 hours. That being said, getting prequalified isn’t the same as getting pre-approved. Understanding the differences between the two will help you along your home buying journey.
What is Mortgage Pre-qualification?
Pre-qualification is the initial step in the mortgage process once you reach out to a lender about financing. With pre-qualification, you provide the lender with your basic financial information. They will then run it through automated underwriting (or manual underwriting) to see if your information qualifies you for one of their loan products.
This process does not involve verifying the information you provide–that comes later. This is essentially an estimate of whether or not you would be qualified to borrow money from the lender. Some mortgage pre-qualifications may include an estimated amount of how much money you could potentially be able to borrow.
What is Mortgage Pre-approval?
Mortgage pre-approval takes the process a step further. The information you gave to the lender will be checked for accuracy. The underwriter may verify things like your credit score and history, your tax return information, your employment status, and more. Once your financial information is verified, and the lender has determined that you meet the guidelines for a loan, they will provide you with a pre-approval letter.
The Benefits of Getting Pre-Approved for a Mortgage
This official document shows that you have begun the process of securing financing for a home purchase. This letter can help you when you begin the house hunting process, as it lends more credibility to your offer.
When you get pre-approved for a mortgage, the lender will usually include a dollar amount that you are pre-approved to borrow. This can be helpful in that it provides you with a price limit before you begin your home search. That way you’ll avoid wasting time looking at properties that are beyond your budget.
Keep in mind that the amount for which you are pre-approved doesn’t necessarily have to be the amount you spend on a home purchase. In fact, it is wise to stay a bit below your pre-approval amount, in case other expenses pop up.
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