When starting the exciting process of buying a home, potential homeowners may hear a lot of new words and phrases, such as “pre-qualified” and “pre-approved.” These are two very important steps that take place during a mortgage application process. Understanding these steps and how they differ is important, as knowing the difference between pre-qualified vs pre-approved can help decrease the amount of confusion in what can be an already overwhelming process.
Pre-Qualified vs Pre-Approved: What’s the Difference?
Although these terms are often used interchangeably, it’s important to understand the differences.
A pre-qualification is an estimate of the potential loan amount a borrower could receive based on basic information required by the lender about the borrower. It is the process of a lender reviewing a borrower’s creditworthiness before loan approval. If a pre-qualified borrower decides to apply for a loan and seek pre-approval, the lender will require more information.
A mortgage pre-approval is an evaluation of a potential borrower by a lender to determine whether they can be given a loan or not and, if so, for what amount. A borrower can be pre-qualified and not receive pre-approval.
Pre-Qualified vs Pre-Approved: What’s the Process?
Getting pre-qualified for a home loan is a quick and simple home lending process. Getting pre-approved takes time and requires important information, such as employment history, financial documentation and credit history.
Basic Information Needed for Pre-Approval
The pre-approval process begins by the borrower sharing basic information, such as,
- Name and date of birth
- Social security number
- Marital status
- Number of dependents
- Address history
Pre-Qualified vs Pre-Approved: Employment History
A borrower’s employment history is looked at during the pre-qualification process, but it is thoroughly considered during the pre-approval process, as lenders require the following information:
- Employer’s contact information (current and past)
- Dates of employment
- Monthly income
Pre-Qualified vs Pre-Approved: Monthly Income and Housing Expenses
Similarly, a borrower’s monthly income and financial situation are glanced at during the pre-qualification process, but it is thoroughly considered for pre-approval. During this process, lenders consider the following:
- Real estate income
- Bank statements
- Retirement and brokerage accounts
Pre-Qualified vs Pre-Approved: Loan Type and Terms
A big difference between pre-qualified vs pre-approved is that you can get pre-qualified for a loan without knowing what specific loan you need. When it comes to pre-approval all the details are considered, such as,
- Loan amount
- Loan terms
- Interest rate
Pre-Qualified vs Pre-Approved: Property Information and Loan Purpose
To get pre-qualified you don’t need to know details about what property you will purchase. During the pre-approval process, you do need to know the legal description of the property as well as the occupancy status (primary or secondary residence).
Pre-Qualified vs Pre-Approved: Assets and Liabilities
A borrower’s assets and liabilities are not considered when seeking pre-qualification. However, during the pre-approval process, lenders will check the following:
- Checking and savings account balances
- Life insurance
- Stock, bonds, retirement savings and mutual funds
Getting Pre-Qualified and Pre-Approved for a Home Loan
Getting pre-qualified is a non-essential first step in the homebuying process, although it is common among first time home buyers. Getting pre-approved, on the other hand, is required to obtain financing for a home. While you can purchase a home without being pre-qualified, you must be pre-approved. The good news is, you can get pre-qualified and pre-approved today with Wyndham Capital Mortgage.