If you are buying a home, you’ve heard the terms pre-qualified and pre-approved. While the terms are often used interchangeably, they are two different terms for two separate steps in the process of securing financing for your home.
Jocelyn Romano, Realtor, explains, “Pre-qualification is the first step in the process. It gives you an idea of how much of a loan you will likely qualify for.”
Pre-qualification takes place during the initial meeting with a mortgage lender or bank. During this phase, the buyer provides a quick overview of their financial situation. The mortgage lender will then give an estimate of how much you can qualify for, without completing a full background check into your finances. The mortgage lender may also explain the different types of loans and options you have during pre-qualification.
Sellers want to know that the potential buyer has met with a lender and is pre-qualified to obtain a mortgage loan. Realtors also understand the importance of this step, and will typically make sure you have a pre-qualification letter before taking you on showings.
Realtor Ryan Casey explains, “Pre-approval is the second step. This is when they (lenders) give you more of a commitment to that mortgage.” This step requires the buyer to complete an official mortgage application and provide documentation of their financial situation.
In order to get pre-approved, you will need to provide proof of identity and residence, tax documents, proof of employment, proof of income, and bank statements.
During the pre-approval process, an underwriter will verify your financial status, and the lender will be able to provide you with an exact loan amount.
Even though a pre-approval is more thorough than a pre-qualification, it does not guarantee a loan. It is important to speak with your lender about what you need to do to ensure you get the clear-to-close letter, which is the final step, and guarantees a loan.
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