Difference between Pre-qualified and Pre-Approved Home Loans
The difference between pre-qualified and pre-approved is that a lot but both the terms are inter-linked. Pre-qualified is the first step to Pre-Approval.
Pre-qualification is not a Guarantee that you are being assured the loan. It just means that you may qualify for one! In this step they take all your financial details they require for them to do the math and give you an amount that you would be eligible for.
After everything is done and if you are eligible, they will further ask you about your goals and future prospects and give you the best interest rate possible. The pre-qualification is a verbal conversation between the loan buyers and Bank officials.
In case of Pre-Approval the Bank will make an in-depth and comprehensive verification of the loan buyers credit scores, annual income, income over the last few years and many other factors. The process isn’t done verbally and also isn’t based on the details given by the loan buyer over the phone! Here, the banker will do a thorough background check of the loan buyer and only then approve the loan process for the individual.
To conclude we can say that in the case of pre-qualified loans you are not completely entitled to getting that loan. It is NOT a sure thing. Although, receiving a pre-qualified request means that you are above the crowd. Now, in the case of pre-approved loans you have almost no constraints! But again, the bank holds all rights to deny you that loan at any point given and after which customers may argue but on valid points. Not on grounds if there has been something wrong detected at the end of the process but grounds where the reason has not been made clear to the individual or applicant.
Pre-Qualified is Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it doesn’t mean much at all if you don’t provide accurate data.
The initial pre-qualification step allows you to discuss with your lender any goals or needs you might have regarding your mortgage. Your lender can explain your various mortgage options and recommend the type that might be best suited to your situation. Your pre-qualified amount isn’t a sure thing, because it’s based only on the information you’ve provided. It’s just the amount for which you might expect to be approved. A pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer, who has been more thoroughly investigated.
Pre-qualifying can nonetheless be helpful when it comes time to make an offer. “A pre-qualification letter is all but required with an offer in our market,” says a source.
“Sellers are savvy and don’t want to enter into a contract with a buyer who can’t perform on the contract. It’s one of the first questions we ask of a potential buyer: Have you met with a lender and determined your pre-qualification status? If not, we advise options for lenders. If so, we request and keep on file a copy of the pre-qualification letter.”
Pre-Approved is Getting preapproved is the next step, and it’s much more involved. “A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a preapproval is the definitive word,” says a source.
You must complete an official mortgage application to be preapproved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can pre approve you for a mortgage up to a specified amount after reviewing your finances. You’ll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate. Some lenders charge an application fee for pre-approval, which can amount to several hundred dollars.
You’ll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. This obviously puts you at an advantage when you’re dealing with a seller, because you’re one step closer to getting an actual mortgage.
The other advantage of completing both steps—prequalification and preapproval—before you start to look for a home is that you’ll have a good idea in advance of how much you can afford. You won’t waste time looking at properties that are beyond your means. Getting preapproved for a mortgage also enables you to move quickly when you find the perfect place, and it lets the seller know that your offer is serious in a competitive market.
You’ll give your lender a copy of your purchase agreement and any other documentation necessary as part of the full underwriting process after you’ve chosen a home and made an offer. Your lender will hire a third-party certified or licensed contractor to do a home appraisal to make sure the house you want to buy is worth the amount you’re going to borrow.