What is the difference between Mortgage Pre-qualification v. Pre-approval?

Before I elaborate on the difference between a pre-qualification v. pre-approval, I will give a brief outline on the difference between the two processes.

Pre-qualification

The very first step in the home buying process
Estimates income, assets, and liability
Pulling a free credit score helps
Good for you to know where you stand

Pre-approval

Mortgage lender pulls credit score
More official than a pre-qualification
Tax returns and bank statements needed
Shows agent and seller that you are serious about purchasing home

What Is a Mortgage Pre-Qualification?

If you are even thinking about purchasing a home or a property, the very first step is to check if you qualify. In all, a pre-qualification quickly determines what you’d likely qualify for if you made an offer and applied for a home loan. When you are interested in purchasing a new property such as a home, your real estate agent and home seller will first want to know if you can even afford the property. If you can’t afford to purchase it, you will end up wasting the real estate agent, home seller, and even your time. So, it is a good practice to know if even you can afford it.

Furthermore, you’ll want to see if there are perhaps other issues that will eventually disqualify you from getting a mortgage. These issues aren’t so obvious especially for first timers purchasing a new home loan. Also, while you may think that you qualify, it is always good practice to know for sure especially because rules are always changing.

What you need

It is a straightforward process. You simply check to see that you can afford a mortgage. Pre-qualification is based on your:

Income/debt levels (debt-to-income ratio)
Employment history
Down payment
Assets
Perceived credit score
and so on…

Pre-qualification is simply an estimate of how much you make or what you have in your savings account. Your credit report isn’t even pulled to avoid the hard inquiry. A lender-initiated credit report can work against you. Hence, it is a safer bet to pull your own credit report through safe websites before speaking to a mortgage broker. This will help you determine where you stand regarding your credit. In the end, you can check if you meet qualifications with a bank or even a mortgage broker such as 3CALoan. However, it doesn’t matter all that much to the real estate agent or seller.

Compared to a pre-approval, a pre-qualification is less robust. Nonetheless, it is always a smart idea to check if you qualify. One should not think of this process as a waste of time. Although it doesn’t necessarily take you far, you’ll be able to see where you stand. Thus, when it comes to getting pre-approved, you at least have some idea of issues that need to be addressed. Pre-qualification is certainly something to consider as you learn more about the home buying process.

What Is a Mortgage Pre-Approval?

A mortgage pre-approval, on the other hand, carries more weight as opposed to a pre-qualification. While a pre-qualification is an estimate, a pre-approval shows how much you can afford. Furthermore, a pre-approval is a document from a bank or a mortgage lender. This written, conditional commitment states that you are pre-approved for mortgage financing. In other words, unlike a pre-qualification, pre-approval is more official. Hence, the agent and seller see your accurate financial information as well as the fact that you’re committed to buying the home in question. In effect, a pre-approval boosts your chances of getting what you want with the price you want.

What you need

In order to get a pre-approval from your bank or mortgage lender, you must do the following:

fill out a loan application
run your credit
underwrite the loan file based on current mortgage rates
supply verified
- employment documentation
- income
- assets

Only after a mortgage lender verifies the items mentioned above can they calculate minimum credit card payments, debt obligations against your income, and student loans. You must show your credit report, bank statements, pay stubs, and tax returns. This way, they can figure out your debt-to-income ratio and exactly how much you can afford.

Where 3CALoan comes in

At the end, if you check that you qualify for the mortgage, it’ll be easier and efficient for everyone involved if it’s between you and another qualified buyer. Hence, most real estate agents demand that the borrower gets pre-approval for a mortgage loan before they start the process of even showing the property. In this case, most agents will refer to a preferred mortgage contact that they’ll refer you to in order to initiate the process. For instance, your real estate agent lead you to 3CALoan to check if you meet the pre-approval guidelines for purchasing a property. While, it is always good to do your own homework, you can use us for your pre-qualification and pre-approval needs. Moreover, we offer free consultations to help lead you to the correct direction.

The pre-approval process

The pre-approval letter is usually valid from 2-3 months. Before getting the letter, you must provide the relevant documents and get the mortgage pre-approval letter from a bank or a lender. It is important to note however that in those 2-3 months, things such as your credit score can change. Hence, this document is not a 100% guarantee that you will be approved for a mortgage.

For example, let’s say that the credit score approval threshold is 620. If your FICO score falls to something drastic like 600 or even something subtle like 618, you can be denied. It won’t matter that you already have your pre-approval in this case. Additionally, after getting the pre-approval letter, the underwriter may discover something they missed. If the thing they missed is against your favor, you will be denied. Ultimately, an approval isn’t solidified until the mortgage is funded and closed.

Aftermath of getting a Mortgage Pre-Approval

After you get a pre-approval, you’d want to apply with a lender to receive the loan. This lender can be the same one who provided you with the pre-approval or a different, unrelated party. It is best to see who would be the perfect fit for you despite what others say (including your agent).

After finding a lender, you sign a disclosure and get a loan application. These two signify that you are now ready to proceed with the process. The lender collects paperwork and relevant signatures to process the loan. Next, it reaches the underwriter who approves of the documentation. The underwriter then generates a list of conditions. This list may or may not be applicable. Nonetheless, it initiates the process to draw documents and fund the loans. You also have the opportunity to choose the type of interest rate you are interested in (pun intended). For more information, you can always call your mortgage broker (us) at (818) 322-5626 or (818) 3CA-Loan. We’ll guide you through the process.

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