Mortgage Pre-Qualification Versus Pre-Approval: What To Know

Are you thinking of purchasing a home? Understand the difference between mortgage pre-qualifications versus pre-approvals and their role in buying a home.

Buying a home can be confusing – especially if you’re unfamiliar with industry terms and applications. One topic that’s often difficult to understand is the difference between mortgage pre-qualification and pre-approval.

Learn how they differ and how you can benefit from both.

Mortgage Pre-Qualification Versus Pre-Approval

Mortgage pre-qualification and pre-approval are both very important steps in the mortgage process that can help you understand what you can afford, but they differ and occur at different times. Pre-qualification happens first and is a quick assessment of your financial health to predetermine the loan amount you could qualify for. Mortgage pre-approval is a more thorough appraisal of your financial wellness that is done later in the home-buying process.

Mortgage Pre-Qualification

Early in your homebuying journey, you can get a mortgage pre-qualification. Based on the information supplied on your loan application, a mortgage lender provides a close approximation of what you’ll qualify for if you were to submit a formal application that undergoes a more in-depth review.

At A+FCU, we pull a credit report and base your pre-qualification on the information that appears on the report along with information provided on the application, but every lender is different.

Pre-qualifications can be beneficial if you’re planning on buying a house in the future and want to look at how lenders view your financial history. It can also help you start shopping around for a house and give you a good idea of what you can afford and thus what to look for.

Mortgage Pre-Approval

As you prepare to make an offer on a home, you’ll want to obtain a mortgage pre-approval. This requires verification of your income, assets, debts, and a credit report. Once authorized, your loan pre-approval is good for 30-90 days, depending on the lender.

A pre-approval can be critical and give you a competitive edge when making an offer on a house – this shows you have secured financing and will have the necessary funds to move forward with the purchase.

Pre-Approval Letter

A pre-approval letter is the outcome of the mortgage pre-approval process and will state that the individual has been pre-approved for a mortgage loan up to a specific amount. This letter can often speed up the mortgage application process once you find a home you’d like to purchase since your lender has already reviewed your financial information. A pre-approval letter will include:

• Loan amount
• Loan type
• Expiration date
• Any conditions, like verifying income closer to the purchase date

Which One Do I Need?

Both can be beneficial depending on where you are in your home buying journey, but ultimately, a mortgage pre-approval will help you most when placing an offer on a home. While a pre-qualification tells you how much a lender is willing to loan you, a pre-approval backs your offer and lets the seller know you’re a serious buyer.

Choosing A Mortgage Lender

Choosing a mortgage lender that fits your needs when securing a loan is essential in homebuying. A+FCU offers home loan calculators to help you understand your options and invaluable financial counseling to kick off and customize your mortgage to ensure it makes sense for you. Whether you’re looking for a fixed-rate, adjustable-rate, conforming, or jumbo loan, A+FCU can help you understand mortgage options.

Home Buying Stages

For many potential homebuyers, the process can seem intimidating and confusing. Here is a quick general review of the process and where pre-qualification and pre-approval fit in.

Budgeting & Checking Finances

The first step in the home buying process starts with a look at your finances to see your income, savings, debt, and credit rating. Then, you’ll want to save for a down payment. Many buyers save between 10 and 20% of the home price while setting aside money for closing costs and moving expenses. That said, some people qualify for VA or USDA loans that do not require a down payment or first-time homebuyers programs that require a smaller percentage upfront.

Finding A Real Estate Agent

A good real estate agent will understand your wants and needs when purchasing a home. They also typically have lenders and loan officers they can work with to help secure pre-approval for you. This pre-approval is helpful for the real estate agent to know what the buyer qualifies for.

Pre-Qualification & Pre-Approval

Now is the time to secure a mortgage pre-qualification to help you understand how much you can borrow.

House Hunting

Once you have found a real estate agent, the fun part begins! Your agent will show you homes that fit your budget and location needs.

Making An Offer

When you find that home you can’t live without, you will secure your mortgage pre-approval and submit a formal offer.

Home Inspection & Appraisal

If your offer is accepted, it’s time to schedule a home inspection and appraisal to examine the home’s condition and ensure the home’s value matches the purchase price.

Mortgage Finalization

The final step is finalizing your mortgage by submitting your application and any relevant documentation like tax returns or bank statements. Then, you’ll lock in your interest rate.

Next Steps

Ready to start the home buying process? Submit an online loan application to receive a pre-qualification or pre-approval from A+FCU. Once you apply, we’ll send you a pre-qualification letter, and a mortgage expert will contact you to discuss your options and answer any questions you may have. You’ll receive a list of documents required for pre-approval along with the pre-qualification letter. See the applicant checklist here to get an idea.

Summary

There are many steps involved in the home buying process, but mortgage pre-qualification and pre-approval are two of the most important. Pre-qualification shows you what you can afford and can give you a glimpse of how lenders will look at your financial situation, while pre-approval can help strengthen your offer on a home.

A+ Can Help You With Mortgage Pre-Qualification & Pre-Approval

A+FCU is passionate about helping its members purchase homes. We understand the challenges of home buying, which is why we have developed resources like helpful home loan calculators, articles on ways to plan for home ownership, and financial coaching to guide you every step of the way.

Membership required. Programs, rates, terms, and conditions are subject to change without notice. Normal lending criteria apply. All loans subject to credit approval. Rates are subject to credit score, loan-to-value matrix adjustments, and normal credit underwriting factors. Property must be located in Texas and primary owner-occupied single family residence. NMLS #405608.