What is the difference between pre-qualifying for a mortgage and being pre-approved for a mortgage?
When looking for a home, 2 very common terms you will hear are pre-qualified and pre-approved, but do you understand the difference? It is recommended that before you start looking for a home you fully understand how much you can afford.
Prequalifying should take less than a half hour and require you to answer a few questions. You provide the overall financial picture that you are currently in (income, debt, assets, etc) and the bank will evaluate it and give you an idea for how much you could qualify for. Normally you would look into this before you look for homes.
This comes in handy when looking for a new home, since you don’t want to fall in love with a home you couldn’t qualify for the mortgage on. Being prequalified for a home is nice, but remember it isn’t a guarantee that you can qualify for the loan.
Pre-approval is much more in depth. You will need to fill out the actual mortgage application. The lender will ask for verification of your income and assets, your credit report, etc.
Since this procedure is much more official, the bank will give you a conditional letter stating what they would be willing to loan based on additional information (such as contract price, appraisal, etc.)