You’ve saved up for what seems like eons. Your credit is in great shape. You’ve done your research. Now you’re (finally) ready to buy a home. What’s the next step?
Before you begin your Western North Carolina home search, there’s one more thing you need to do: Set yourself up to be the strongest buyer in competition for your dream home—someone the home seller can’t help but say “yes” to. Get pre-approved for your home loan.
You may have heard of home loan pre-qualification or pre-approval. But do you understand how helpful they can be during the mortgage application process? Below, we’ll lay out the difference between pre-qualification and pre-approval, and which is better when buying a home.
Home Loan Pre-qualification vs Pre-approval
In today’s market, it’s all but necessary for buyers to be pre-qualified or pre-approved before putting an offer on a house. Both options help you determine how much home you can afford based on the specific financial information you share with your lender. The goal of each is to find out what price range is right for you based on your financial history, credit, and projected monthly expenses. This gives you significant buying power with a seller who recognizes you will be approved for a loan.
They may seem similar at first glance, but the terms “pre-qualification” and “pre-approval” should not be used interchangeably. Let’s break them down individually.
What is Home Loan Pre-qualification?
Home loan pre-qualification is an informal discussion between you and your lender that helps you determine how much home you can afford. This is typically done for free over the phone or online, and it can take just a few minutes to do. The lender estimates the amount that you can borrow based solely on what you tell them about your income and assets. The lender does no verification of your assets or check on your debts. In some cases, they don’t even run a credit check. Consequently, there is no guarantee you will qualify for that particular loan amount when you apply and your finances are checked in detail. Further, the lender is not bound to give you a loan when you’re ready to buy.
What is Home Loan Pre-approval?
Home loan pre-approval takes you one step further than pre-qualification. First, you and the lender discuss your financial capacity based on the income and assets you provide. Then, pre-approval requires that the lender verify your financial information. This includes your documented employment, income, liabilities, assets, and the cash you have available to close on a home purchase. It can take buyers about half an hour to fill out the application, and days to get an answer.
However, once you are pre-approved, both you and your lender have a true picture of your ability to manage a home loan of the size discussed. Plus, this more detailed verification process also serves as a conditional commitment from the lender to approve you for a specified amount based on that confirmed information, as well as the interest rate you can expect. (That is, assuming your finances do not change significantly before the loan is formally approved.)
Why Home Loan Pre-approval is Better
When you’re pre-approved for a home loan, both you and your lender understand exactly how much home you can afford, and the lender is on board to write you that loan. That gives you peace of mind as you shop for a home, knowing that you will qualify for the proper mortgage amount. It also helps you weed out homes that are outside your price range. And once you’ve found a home to buy, it cuts down on the first step of the mortgage application process.
And in a process as hectic as home buying, doesn’t it feel good to know you’re already a step ahead?
Home loan pre-approval offers another, perhaps even more meaningful benefit. To a seller, a lender’s pre-approval letter is considerably stronger than a pre-qualification letter. And in today’s seller’s market, it could make your offer stand out among others for a particular property. If a seller knows your financing is secure because you’ve already been pre-approved, they will take your offer more seriously. That can make all the difference between having your offer accepted or rejected.
Get Pre-approved for Your Home Loan Today!
At Beverly-Hanks Mortgage Services, our goal is the same as yours. We’re here to help you purchase a home while creating as seamless a process as possible.
Our experts at Beverly-Hanks Mortgage Services are uniquely suited to help you prepare for the home buying process. Our singular focus on home mortgages allows us to offer a broad menu of financing options, very competitive rates, and customer service that is second to none.
Find out how together we can make your dream home a reality. Learn more about Beverly-Hanks mortgage pre-approval and calculate your payments today.
