Do You Need Both? How Are They Different?
Buying a house is a lot more complicated than finding one and making an offer. There are steps you'll need to take before you even begin house hunting, which can include mortgage pre-qualification and pre-approval.
Both pre-qualification and pre-approval are helpful steps to take during the home-buying process. But are both necessary? Is one better than the other? Is one more suited to your specific needs? Learn more today so that you can set yourself up for success!
Mortgage pre-qualification is an informal assessment of how much house you can afford and sheds some light on your creditworthiness. When you pre-qualify for a home loan, you show that you meet the minimum requirements of the lender. Pre-qualification can also help you get a feel for the amount of money that you may be eligible to borrow.
Is Pre-Qualification Right For Me?
Pre-qualification can be very helpful in narrowing down a budget. If you're not sure of your financial standing or are having difficulty figuring out just how much of a loan you'll need, this step is extremely beneficial.
Tip: Don't start shopping for a house until you know exactly how much you can afford!
What is Evaluated During Pre-Qualification?
Basic information is reviewed during pre-qualification, including:
- Your credit score
- Your income
- Any debts you have
Typically, the borrower provides the answers to the lender's questions, rather than the lender examining documents themself.
Does Pre-Qualification Hurt My Credit Score?
Since the information provided during pre-qualification is usually self-reported, it shouldn't impact your credit score.
But never assume something won't impact your rating, as lenders are all different! Make sure you are very clear on their specific pre-qualification process. If they ask to see any documents or request to verify information, ensure your credit score won't take a hit from any inquiries they plan on performing.
How Long Does it Take to Pre-Qualify?
Since pre-qualification is an informal evaluation that could be done over the phone or even online, you could pre-qualify for a mortgage in a matter of minutes!
That means that those in the market don't have to wait for weeks on end to get their house-hunting process started. A buyer could have a better indication of how much house they can afford the same day they request to pre-qualify.
Pre-approval is similar to pre-qualification in that it is examining your financial situation and determining how much you may be able to borrow.
It's different in that mortgage pre-approval requires proof of the information you give, so you'll have to submit documents that show your:
And the lender may or may not request a credit check. When you are pre-approved for a mortgage, you are as close to securing a loan as you can be without having a written contract in place.
Is Pre-Approval Right For Me?
While not every buyer chooses to get pre-qualified for a loan, most decide to get pre-approved. Why? Because since your finances have been more carefully evaluated, it's a much more accurate assessment of the amount you'd be able to borrow. The lender will typically issue you a pre-approval letter that is valid for a certain amount of time.
That approval letter can greatly assist in your quest to find a home, as it attests to your creditworthiness and shows you are a serious buyer. The difference between securing your dream home and missing out could be that pre-approval letter.
What is Evaluated During Pre-Approval?
Any document that sheds light on your financial stability could be evaluated during the pre-approval process. That includes:
- Tax returns
- Employment documents, like W-2s
- Retirement accounts
- Rent payments
- Divorce information
The lender may request additional documents to further prove your financial stability.
Does Pre-Approval Hurt My Credit Score?
It depends. Here's where it can get muddled, so you'll need to ensure you understand the type of credit check the bank or lender is performing.
It is possible for the lender to do what's called a "soft credit check." Soft inquires do not impact your credit score. A hard credit check, however, does impact your rating, so you'll want to be mindful of how many hard credit checks are being performed when you're shopping for a mortgage.
Tip: Do all of your hard credit checks within a short amount of time of each other so that you can make use of "rate shopping," which can count all inquiries as one.
How Long Does it Take to Get Pre-Approved?
Because getting pre-approved requires the submission and evaluation of financial documents, it can take a few days or even a few weeks to get pre-approved for a mortgage.
Tip: to speed up the process, make sure you have all financial documents organized and ready to be reviewed before you start looking for a lender.
To Sum Up
Mortgage pre-qualification is a great step for first-time homebuyers who would like a better idea of how much they can afford. Mortgage pre-approval is a step that most serious buyers take, as it gives you a competitive edge when shopping.
Ready to get your buying process started? LendGo connects you with top lenders so you can easily compare all of your different options. Start comparison shopping today!