If you are starting to think about purchasing a new home, you may have heard a lot about pre-qualification and pre-approval. These terms can be hard to understand due to the fact that so many people use them interchangeably. It is important however, to know that these are not the same thing even though both are important steps in the home buying process.
What is Mortgage Pre-Qualification?
Mortgage Pre-Qualification is the first step in getting a mortgage. It happens when you signal to a lender that you would like to get a mortgage. The lender will pre-qualify you for a certain amount based on information you give them which will include your income, assets and debt.
Pre-Qualification is quick and can usually be done over the phone or online. At this point the lender will not do a credit check, so the amount you are quoted in a pre-qualification may not necessarily be the same amount that you are quoted in a pre-approval. Nevertheless, a pre-qualification is still useful because it will give you an idea of how much home you can afford.
What is a Mortgage Pre-Approval?
Mortgage Pre-Approval is a little more involved, but it is a necessary step in getting a mortgage. With pre-approval, it is not only you providing information to the lender, but also your creditors. Your lender will collect consumer information such as credit reports.
Mortgage Pre-approval carries more weight than pre-qualification because it lets you know exactly how much you can qualify for. This is important if you are putting in an offer against another potential buyer as the seller is more likely to accept an offer from a buyer who is pre-approved when everything else is equal. Also, it is important to note that some real estate agents will only work with buyers who are already pre-approved.
Once you have been pre-approved for a mortgage, it is recommended that you do not make any major purchases on credit until you have an actual mortgage in place and you have the keys to your new home. Getting a car loan while you are still house hunting for example, is likely to change your debt service ratio which could dramatically lower the amount of money that a mortgage lender is willing to loan you.
If you would like to learn more about mortgage pre-qualification and mortgage pre-approval, contact me today.