What’s the Deal With Mortgage Pre-Approvals and Pre-Qualifications

You’ve finally decided to invest in your own home and are now making the necessary preparations to apply for a mortgage. While you’re shopping around for a housing loan, you’ll have a lot of questions brewing inside your head about the entire application process, starting with pre-qualification. This article aims to answer these questions and help you get a better sense of what mortgage pre-qualification entails.

Mortgage Pre-Approval vs. Pre-Qualification

When shopping around for a house or a mortgage loan, you’ll definitely come across terms like “pre-qualification” and “pre-approval.” There’s actually a stark difference between the two, and it’s crucial for you to understand what these two terms mean if you want to apply for a loan.

Over the years, the meaning of the terms pre-approval and pre-qualification has been a subject of confusion because of how different lenders use those terms for their loan application process. Remember, every lender handles mortgage applications differently. The steps and words involved change from lender to lender. In fact, many lenders use pre-qualification and pre-approval interchangeably.

What Is Mortgage Pre-Qualification?

A pre-qualification generally means that a lender collects some basic financial information from you to estimate what kind of houses you can afford with your current financial situation. This is more like a surface-level assessment of the borrower just to see if the lender has something to offer that the borrower can afford. Here’s what you can expect from a mortgage pre-qualification:

  • What you need to submit
      • Basic financial information about how much you earn, the amount you want to borrow, and how much you’re willing to pay for a down payment.
  • How long it takes
      • Mortgage pre-qualification only takes minutes to an hour at most.
  • Why it matters
    • You’ll have a good idea of how much you can afford in terms of mortgage loans.

In even more simplified terms, it’s just a ballpark estimate. Of course, more details will be discussed once you decide to pursue your pre-qualification status and apply for a loan. Yes, this is just a precursor to the actual mortgage application process. If you’re pre-qualified, the mortgage lender will send you a pre-qualification letter that you can show to a real estate agent or a seller as proof that you’re working with a lender. However, this doesn’t carry as much weight as a pre-approval does.

What Is Mortgage Pre-Approval?

Getting pre-approved for a mortgage means that a lender has reviewed your financial situation more thoroughly and confirmed your ability to take on mortgage payments. They require a couple of financial-related documents to start the pre-approval process. Pre-approvals tend to take more time to process since the lender reviews all pertinent information found in the documents you submitted. Here’s what you can expect from a mortgage pre-approval:

  • What you need to submit
      • Financial statements and records of your income, debt, bank accounts, tax filings, and your credit.
  • How long it takes
      • It takes about 2-10 days for a lender to process your application.
  • Why it matters
    • You’ll have conclusive evidence that you’re a serious buyer with financing lined up.

Your lender will estimate how much you can afford to borrow, what your interest rate could be, and how much your monthly mortgage payments could amount to. You’ll have a much easier time finding a home that suits your needs and budget once you’ve been pre-approved by one or more lenders.

The Bottom Line—Getting Pre-Approved Matters

Pre-approvals serve as a much stronger piece of evidence that you are a capable buyer and that you can afford to finance your home. If you just want a rough projection of what kind of loans or houses are open to you, then being pre-qualified works just fine. However, if you want to take an official step in a mortgage application, getting pre-approved is what you really need.

ACB Mortgage Solutions is here to help you secure the financing you need to buy the house you’ve always wanted. The beauty of working with a mortgage broker like us is the variety of loan products and competitive rates available to you all at a reasonable fee. Not sure how to get approved for a home loan? Feel free to contact us if you have any questions. You can also schedule an appointment to start your loan application process today!