So, you're thinking about buying a home - exciting! You may have heard some confusing terms thrown around like "pre-approval" and "pre-qualification." These terms are often used interchangeably, but they refer to two different steps in the mortgage process. What's the difference? We’ll break it down for you.
Key Takeaways:
Pre-qualification estimates your borrowing power. Pre-approval confirms it.
Pre-approval requires submitting income, asset, and debt documents.
To get pre-approved, you'll need to meet debt-to-income and credit score requirements.
In order to begin the home-buying journey, your agent may require that you get pre-approved.
Breaking It Down: Pre-Qualification
Pre-qualification is the first step in the mortgage process where a lender reviews your basic financial information, like your income and debts, to give you an idea of how much you may be able to borrow. This can help you figure out what kind of home you can afford and start dreaming of your perfect kitchen or backyard. It’s important to note that pre-qualification is an estimate of how much a borrower can expect to get from a lender; it’s not a sure thing but it's a helpful starting point.
Understanding Pre-Approval
Pre-approval, on the other hand, is a more detailed process that involves completing an official mortgage application and submitting documentation to a lender to verify your income, assets, and debts. They'll also do a credit check to review your credit score and history.
Once you're pre-approved, you'll receive a pre-approval letter outlining the maximum amount you can borrow, what interest rate you may receive, and the loan terms. This letter is important because it shows sellers that you're serious about buying a home and have taken the necessary steps to secure financing. It can often be a requirement in order to put an offer in on a home. To ensure you’re not wasting your time looking at homes outside your price range, great agents may require you to have this letter before you can even begin looking at your dream homes.
TLDR
Pre-qualification and pre-approval are two important steps in the mortgage process that can help you figure out how much you can afford and make the home-buying journey smoother. Pre-qualification provides a rough estimate of your borrowing power while pre-approval confirms it with a more detailed process. By understanding the difference between the two and getting pre-approved before beginning your home search, you'll be well-positioned when you find your dream home.
Good luck and remember to always #staychoosi
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