Getting pre-qualified and pre-approved for a mortgage are both important steps in the homebuying process. Below, we explain the difference between the two terms.
Pre-qualifying for a mortgage
Pre-qualification is the first step in the mortgage process. Here, the hopeful buyer provides their lender with a detailed description of their finances, including income, assets and accrued debt. The lender returns an estimate on the mortgage amount they will likely approve for that buyer.
It’s important to note that pre-qualification is an estimate of how much house the buyer can afford. Most lenders provide pre-qualifications for free, and they can be completed in a short time over the phone or online.
Getting pre-approved on a mortgage
The second step towards attaining a mortgage, preapproval, is a much more involved and thorough process. Here, the buyer turns in an official mortgage application and provides the lender with an extensive financial history.
In return, the lender provides a more specific loan amount as well as the estimated interest rate the buyer can expect (assuming rates hold).
Not only does pre-qualification and pre-approval help you determine your search parameters, they can also help you in negotiations. Sellers and their agents are more likely to take you seriously if they know they have invested time and energy into getting pre-qualified, and especially pre-approved.
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