Pre-Approval vs. Pre-Qualification: Which Should You Get?
Though used interchangeably, mortgage pre-qualification and mortgage pre-approval are not the same. Here's what you should know.
Mortgage pre-qualification and pre-approval are often used interchangeably, but they are not the same. One carries more weight than the other. Find out what the differences are and which one is best for you.
What is Mortgage Pre-Qualification?
An initial step in the house-hunting process, a mortgage pre-qualification means a borrower will probably be approved for a home loan up to a specific amount. There is neither a commitment to lend nor a guaranteed amount.
Why would I want a mortgage pre-qualification?
Pre-qualification is not required, but it is a good starting point for home buyers who are unsure if they can qualify for a mortgage loan. In addition to giving borrowers an idea of how much they can afford, a pre-qualification—provided by the lender—also serves as a snapshot of a borrower’s creditworthiness. If a borrower is satisfied with the assessment, they can then take the next step: applying for pre-approval.
While some lenders believe pre-qualification is useless, for borrowers, it is a valuable tool; pre-qualification can help a borrower determine the loan size they will likely be approved for. With a better understanding of where they stand, home buyers can narrow their search to homes within their price range.
What documents do I need to pre-qualify for a mortgage?
You will need to provide basic financial information which includes proof of income and a list of assets and debts. A soft credit inquiry may be pulled, but it’s not required. Afterwards, the lender will use the initial information to determine if you meet their criteria for a home loan.
How long does pre-qualification take?
The pre-qualification process is quick. It can take a few hours or up to 3 days.
What is Mortgage Pre-approval?
A mortgage pre-approval is a conditional commitment after an extensive evaluation of a borrower’s financial background and credit history. Borrowers will receive in writing the pre-approval for an exact loan amount, and they may be able to secure an interest rate.
Why should I get pre-approved before looking for a home?
A pre-approval is a statement of your credit worthiness. In the eyes of a lender, a pre-approved home buyer has proven their reliability and seriousness about buying a house. The housing market is very competitive, so having a pre-approval letter will give you an advantage over other buyers. Lenders will also be more willing to negotiate with you.
What documents do I need to get pre-approved for a mortgage?
Every lender will have different requirements. Generally, to get a preapproval letter for a mortgage, you need to provide the following:
Proof of income and employment documents
- W-2, 1099s, recent pay stubs, rental income
Proof of assets
- Bank account statement, retirement accounts, CDs
- Credit cards, mortgage, other loans
Strong credit history
- It varies, but aim for at least 700 and up
- Driver license, social security number
Does a mortgage pre-approval hurt your credit score?
A pre-approval process pulls a hard inquiry. Some sources say that multiple inquiries from various lenders will not negatively impact your score, while others warn borrowers about submitting too many applications in a short span of time. According to credit.com, major credit bureaus see the value of comparison shopping and avoid penalizing homebuyers.
How long is the pre-approval process?
Getting pre-approved for a mortgage loan can take as long as two weeks. Once pre-approved, your pre-approval will last 60-90 days. If house hunting takes longer than three months, the mortgage pre-approval will expire. But don’t worry! You can speak with the lender and they will update your information with reverification of your documents.
If you’re wondering how far in advance you should get pre-approval, the answer is as soon as you are serious about buying a home. Getting pre-approved for a mortgage will help limit your search to the amount in the pre-approval letter.
A mortgage pre-approval is conditional. If there are any major changes to your financial situation that reduces a lender’s confidence, you can be denied a loan.
Should you get pre-qualified or pre-approved for a mortgage? You can do both! It does not hurt to get pre-qualified before a pre-approval. Pre-qualification is a tentative assessment that can help you determine how large of a mortgage you can afford (if at all) and live comfortably. With a clearer picture of your finances, you can then begin the process of pre-approval while focusing on the perfect house that fits your needs.
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