Buying your first home is an extremely exciting time! With everything there is to navigate, however, it can also seem overwhelming. If you aren’t well-versed in the home buying world, there are probably a lot of terms being thrown around that don’t have much meaning to you. If you’ve started to look into mortgages and how to afford your first home, you may have heard the terms “pre-approval” and “pre-qualification” thrown around – maybe even interchangeably. So do you need a pre-approval, a pre-qualification, or both? If you’re asking yourself these questions, you’re not alone.
What is a Mortgage Pre-Qualification?
First things first, what is a mortgage pre-qualification? Getting a pre-qualification letter from a lender means that the lender has evaluated your creditworthiness and decided that you will probably be eligible for a loan around a certain amount.
Pre-qualifications are easy. You give all the information to the lender yourself. No pulling account statements, no credit check – just your own word. Since nothing you are saying is actually being verified, this is just an idea of what you can afford. The amount that you are pre-qualified for is just an estimate, not an exact loan amount. If you give incorrect or dishonest information, a pre-qualification really means nothing.
Even with all of that being said, pre-qualifications still serve two benefits. First, to some sellers in some areas, a pre-qualification can help you during the buying process because it makes you look more serious about buying. Second, it gives you a good idea of what you will be able to afford without actually having to apply. You should always get a pre-qualification before you start looking at homes.
What is a Mortgage Pre-Approval?
So, now what is a mortgage pre-approval? This is much more in-depth than a pre-qualification and is not simply based off of your word. In order to be pre-approved for a mortgage, you must actually submit a mortgage application. It requires W-2’s, tax returns, your credit report, ID, SSN, and a whole lot more. Because everything is being verified in this case, pre-approvals hold a lot more weight than a pre-qualification.
When you receive a pre-approval, it will be for an exact loan amount and sometimes even includes an interest rate. Pre-approvals make you look very serious to a seller and are sometimes the deciding factor when it is between you and a buyer who only has a pre-qualification. Having a pre-approval is the closest you can get to being a cash buyer without actually being one.
Which Should You Get? A Pre-Approval or a Pre-Qualification?
Most sellers require either a pre-approval or a pre-qualification. The first thing you should do when deciding which one you need is to see what the seller wants. If they don’t require either, it is still within your best interest to get one to help your chances – especially in a competitive market.
Pre-qualifications are usually seen as the first step in the home buying process when you’re just putting your feelers out and finding out what direction you should go in. If you’re really serious about purchasing a home, a pre-approval will be the most beneficial to you. Pre-approvals make you look like a strong buyer, give you an exact idea of what you can purchase, and also get you part way through the mortgage process ahead of time. Keep in mind that you can buy a house that is worth less than the loan amount you were pre-approved for. Sometimes lenders will approve you for a loan that is larger than what you can actually comfortably afford with your current spending habits – so take this into consideration, as well.
That being said, neither a pre-approval nor a pre-qualification is a promise that you will actually get the mortgage loan. You could have both and still be denied. This also means that just because you get a pre-qualification or pre-approval from a lender doesn’t mean you can’t switch lenders to actually get a mortgage. It is usually easier for you, however, if you do stick with the same lender since you have already gone through so much of the application process.
Start Your Mortgage Process with a Pre-Qualification or a Pre-Approval from Patriot Federal Credit Union
If you’re on the market to buy a new home, Patriot is here to help. Our friendly and experienced mortgage consultants will help you decide what the next best step is for you – a pre-approval or a pre-qualification – and will be by your side during every step after that. Call us at 717-709-2580, visit one of our branches in Chambersburg, PA, Hagerstown, MD, or Waynesboro, PA, or visit our website to learn more about next steps in the home buying process.
The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Patriot Federal Credit Union does not endorse any third parties, including but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. Patriot Federal Credit Union does not warrant any advice provided by third parties. Patriot Federal Credit Union does not guarantee the accuracy or completeness of the information provided by third parties. Patriot Federal Credit Union recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.