If you're shopping for a new home, it's important to understand the mortgage pre-approval vs. pre-qualification process. These are two key steps that will determine your eligibility for a mortgage.
Many people mix up the two terms, but they have important differences. By understanding the key differences between these two steps, you'll be in a much better position to make an informed decision about your mortgage application.
What's Mortgage Pre-Approval?
Mortgage pre-approval is an evaluation by a lender that determines if you would qualify for a loan for a specific home. It also shows how much the lender is willing to lend you.
Pre-approvals are based on your:
- Debt situation
It's important to note that pre-approvals are based on the information you provide at the time of application. Therefore, your pre-approval may no longer be valid if circumstances change before you close on your home.
What's Mortgage Pre-Qualification?
Mortgage pre-qualification is a less formal evaluation of your financial situation. It's based on the information you provide to the lender, such as:
- Employment history
Pre-qualifications are generally more like a snapshot of where you stand financially. They can give you an idea of what you might be able to afford, but they're not as binding as pre-approvals.
In general, pre-qualifications are a good starting point in the mortgage process. But getting a pre-approval from a lender is important if you're serious about buying a home.
Key Differences Between Mortgage Pre-Approval vs. Pre-Qualification
Now that you understand the basics of mortgage pre-approval and pre-qualification, let's look at the key differences between these two steps:
Mortgage pre-approval involves a more detailed look at your financial situation than mortgage pre-qualification. When pre-approving you for a mortgage, the lender will pull your credit report and assess your debt-to-income ratio.
Mortgage pre-approval gives you more negotiating power than mortgage pre-qualification. When you're pre-approved for a mortgage, the seller knows you're a serious buyer who is likely to be approved for the loan. This security can give you an edge over other buyers without pre-approval.
A mortgage pre-approval is typically valid for 60 to 90 days. This timeframe means you have up to 90 days to find a property and enter into a purchase contract. A pre-qualification is generally valid for 30 to 60 days.
What Can You Do to Increase Your Chances of Mortgage Pre-Approval?
If you're hoping to get pre-approved for a mortgage, there are a few things you can do to improve your chances:
- Check your credit report for errors and dispute them
- Pay down your debt
- Save money for a larger down payment
- Find a cosigner
By taking these steps, you'll be in a much better position to get pre-approved for a mortgage. And once you're pre-approved, you'll be one step closer to buying your dream home.
Contact the Experts
The world of mortgage pre-approval and pre-qualification can be tricky to navigate. If you're unsure which option is right for you, it's always a good idea to contact an expert.
At RightStart Mortgage, we're here to help answer any of your questions. Contact our expert mortgage advisors for more information on the home-buying process.