Going through the process of getting approved for a home loan means having lenders throw different terms around you haven’t heard before. You may have heard your broker or agent refer to obtaining pre-qualification or pre-approval for a home loan, but is there a difference between the two?
A pre-qualification is when a lender reviews your credit history to help determine the maximum home loan amount for which you might qualify. You receive a letter outlining an estimate of what the lender believes you should receive based solely on the information you provided.
It doesn’t account for your current credit report or statements you made before about your net worth. You use it as a snapshot of what you might qualify for if you went through with the formal process of trying to obtain a mortgage.
Unlike a pre-qualification, you must submit all information on your current financial status to your lender for review to be pre-approved.
This is just some of the information that will be reviewed by the lender:
Getting a pre-approval letter means the lender is confirming you would qualify for the loan amount listed.
Pre-qualification letters aren’t a binding commitment and don’t help much when you’re trying to compete against other bids in the market. A pre-approval letter can give you a big advantage when trying to obtain a dream home since it’s a firm offer from a lender. You’re letting buyers know you have the cash available to close on a sale.
Need more clarification about different terms used in the industry? Contact Midland Mortgage with any questions you have today.