Pre-Qualification vs. Pre-Approval
Published: May 2019
Author: Bank of England Mortgage Staff
You’ve heard the terms pre-qualification and pre-approval, but what do they mean? The terms have been used interchangeably, but their true definitions differ.
The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. You will need to provide some basic information such as income, current monthly debts and credit score, but typically you won’t need to provide any documentation.
By providing these items, your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. These aren’t concrete numbers, more of a gauge so you know your price range.
Once you have been pre-qualified, the next step would be to get pre-approved. This process is more involved, requiring more paperwork and the help of a loan officer. Documents you typically need to provide are copies of your paystubs, bank statements and tax returns; additional documents may be needed as well. The loan officer will also pull your credit report to get a better understanding of your credit history and financial situation. Once your information has been reviewed, your loan officer will provide you a pre-approval letter stating how much you are approved to borrow. Having a pre-approval letter can give you a competitive edge against other buyers; it shows the seller you are serious and ready to buy.
You should refrain from making large purchases and incurring new debt at this time, as this can affect your pre-approval amount. Keep in mind getting pre-approved does not mean final approval; once you put an offer on a home and the offer has been accepted, the loan will still need to go through processing and underwriting before final approval is granted.
Getting pre-approved will help speed up the home buying process since you will have a solid foundation of information. Once you are pre-approved, you are on your way to homeownership!