In today’s blog post we are going to discuss pre-approval vs. pre-qualification. Unfortunately, many buyers think that pre-qualifying for a loan means they are pre-approved, but this is not the case. In fact, the two terms are very different, and failing one means you don’t get the home loan you need. In the past, mortgages had low standards for authorizing loans, but this is not the case anymore. Many lenders have very strict requirements above those required by the government, so going through the pre-approval vs. pre-qualification steps is crucial to establishing whether you will get a loan and how much you can afford.
Before you are pre-approved for a loan, you must first become pre-qualified. In the pre-qualification stage, your lender or banker will review general financial information. They might look at debts, assets, and income, but on a very broad spectrum. This step also allows you to explore your loan options with your lender. You can discuss any mortgage goals you have and your lender should be able to give you a rough estimate of how large of a loan you can get in your situation and what type of loan might be best.
The pre-qualification process usually comes at no cost and can even be done over the phone because it is so quick. This step is important to give you a general idea of what to plan for your new mortgage, but it does not give you any guarantees. An analysis of your credit score is not included in pre-qualification, so it’s difficult to gauge loan approval or possible interest rates at this stage. Pre-approval, on the other hand, carries a lot more weight.
Just because pre-qualification doesn’t matter as much as pre-approval, that doesn’t mean it can’t be helpful. In fact, pre-qualification gives you, as the buyer, a better sense of the lender you are dealing with and whether or not they will be honorable in doing business with you.
Gaining pre-approval vs. pre-qualified is much more in depth. First you will fill out a mortgage application that comes with a small application fee. This application includes personal and financial details, and you will need to supply the lender with other necessary documentation that will allow them to check different aspects of your financial background, including your credit score.
The most helpful aspect of pre-approval is that you will know which houses are within your price range. If your financial status checks out, your potential lender will issue you a conditional commitment, which will include the maximum loan amount that you would be approved for. There’s no need to waste time looking at and getting attached to houses that may be outside of your price range.
Commitment after Approval
As you are probably aware, the process doesn’t end with pre-approval. You and the house you are hoping to buy must be thoroughly approved before a lender will offer a loan commitment. Your house must appraise at a value that is equal to or greater than what the seller is asking for it, and personal financial information will likely be evaluated yet again before you finally get that loan commitment that the lender cannot back out of. This letter of commitment also indicates that the underwriters are now working on the loan, and it is almost ready for closing.
Flexible Qualification through Low VA Rates
Have you ever been through the pre-qualification and pre-approval processes before? What were the struggles in these experiences? At Low VA Rates, we have no overlays, or additional lender rules, in place to limit our ability to help veterans achieve home ownership. We have flexible VA loan requirements and a staff that is on your side to give you outstanding customer service, great rates, and the fastest processing possible. To learn more about pre-approval vs. pre-qualification or to start the pre-approval process, visit our site now.