There are all kinds of terms thrown around when it comes to buying a home. Two of these terms are “pre-qualified” and “pre-approved.” While these terms are similar, they are, in fact, very different. Let’s talk about the differences.
Pre-qualification
Being pre-qualified for a mortgage does not guarantee that you will get a mortgage. A lender will talk to you while you’re still a prospective buyer and ask you questions about your credit, assets and income. During this meeting, you will not be required to show proof of income, and a credit check will not be run. There’s no harm in being pre-qualified, but focusing on pre-approval should be your priority.
Pre-approval
Pre-approval from a lender means your credit check has been approved, and that your income and assets have been verified by the lender. The mortgage lender has made a decision to lend you money to buy a home.
There is a time frame to use your pre-approval for the purchase of a home, generally 120 days, according to Realtor.com. For pre-approval, you will need at least two years of tax documents, several weeks of paystubs, your two most recent tax returns, and any other proof of your income. A credit score of 740 or higher will help you get the lowest interest rates and a minimum credit score of 620 to be approved for an FHA loan.
In short, pre-qualification means a lender will have an overview of your financial history, without pulling a credit report or verifying your income. Pre-qualification will not help much when it comes to buying a home, but it will help you learn where you stand and if there are areas you need to work on. Pre-approval, on the other hand, is vital to getting a mortgage.
For more information, please contact your mortgage lender or an experienced Realtor®. Good luck!