Oct
19

What’s The Difference Between Being Pre-Qualified and Pre-Approved For A Mortgage?

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People often confuse the first two stages of the mortgage process.  Often they get pre-qualified and mistakenly believe they are pre-approved.  So what’s the difference?

Pre-Qualified:   This is the first step in the mortgage process.  You talk to a lender and give them overall numbers regarding income, debt and assets.  The lender will evaluate the information and give you an idea of how much and what type of mortgage you qualify for. This is sometimes done over the phone and is not a sure thing, only a ball-park of the amount you might expect to be approved

Pre-Approved:  Is much more involved.  Requires an official application and even sometimes a fee; documentation and extensive check on everything you’ve put on the application as well as your current credit rating.  At this point, if approved, you’ll receive an official commitment in writing for an exact loan amount, with conditions.

Generally, getting pre-qualified before you start looking gives you a starting price you can afford so you’re looking at only properties at or below that price.  Getting pre-approved puts you in a stronger position in offers and negotiations and saves some time.

The loan commitment is the final step in the process.  This approves you the buyer to a specific property.  Your income and credit profile will be checked again to ensure nothing has changed since the initial approval.  It is only issued when the bank is certain it will lend you the money.

Adapted from InvestoPedia article by Brian O’Connell 

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