Securing mortgage pre-qualification and pre-approval are two crucial steps which assure lenders that you will be able to afford payments. Pre-qualification and pre-approval are quite different, but they do share numerous benefits.
As you get ready to finance a new home, you have probably come across mortgage pre-approval, mortgage pre-qualification, or even both of them. So what does it mean to get pre-qualified versus get pre-approved for a mortgage, and what are the benefits of the two? Some people use these terms interchangeably, but there are crucial differences that every homebuyer should know.
The Similarities of Pre-Approval and Pre-Qualification
Mortgage pre-approval and pre-qualification have the same great benefits for anyone who wants to buy a home with a home loan. Here are the benefits:
1. Both can help to estimate the loan amount that you will probably qualify for.
This particular benefit can help you save time as you will start your home search with a goal in mind: looking only at properties that you know will fall into your budget or fit in your financial goals. It will also help you avoid the frustration of discovering that the house you are looking to buy is actually outside your budget.
2. Both can help convince sellers that you are a serious buyer when submitting your offer.
Regardless of whether you have a pre-approval or a pre-qualification letter, the seller will take you as a serious contender. For a home seller to accept your offer without fear, they will want to know that you will be approved successfully for a mortgage and the home sale will close. A pre-qualification and pre-approval letter can help show that you have a better chance of being approved for a home loan for the amount that you have offered on the home.
3. Both of them will make you stand out from the crowd.
Many home sellers will require a pre-qualification or pre-approval letter if you are planning to get a mortgage as one of the mandatory requirements. However, if it is not needed, have it at the back of your mind that the letter may help your offer stand out. This can be extremely helpful, especially in competitive real estate markets.
Additionally, you should know that neither pre-qualification or pre-approval letter is a guarantee that you will get a loan from the lender. Also, you are not duty-bound to get a mortgage from the lender who pre-qualified or pre-approved you. Pre-qualification or Pre-approval?
Since the terms mortgage pre-qualification and pre-approval are often used interchangeably, it could be challenging to know which one you need to purchase a home. This depends on how your mortgage lender defines the service. So, ensure you ask your lender exactly how they interpret pre-qualification and pre-approval.
Then discuss with your real estate agent to find out which version of the letters has more credibility in your market. So that when it is time to make an offer, you will have what you need to give sellers confidence that you will be approved for a mortgage.