Homeownership is one of the biggest milestones of most people’s lives. For many, it’s still one of the major cornerstones of the American dream. If you’re new to the process of buying a home, however, it can feel like there’s a lot to learn and understand.
For example, many novice homeowners get confused about the terms pre approval vs pre qualified. It’s essential that you understand these terms if you’re thinking about taking out a loan for a home, or for any other reason.
While both of these terms may sound like they mean roughly the same thing, understanding the distinction can help out a lot when trying to secure the money you need.
What do you need to know? Read on and we’ll walk you through the basics.
What Does It Mean to Be Pre-Qualified?
Understanding the home loan process properly can make a big difference in ensuring you get the home of your dreams. A big part of that process will be getting pre-qualified by a bank or money lender.
Being pre-qualified, in short, means that a bank has decided that you will most likely be approved for a loan up to a certain amount. The point of being pre-qualified is to give yourself confidence going into the search for your new home.
You’ll know that if you do find something that you’re in love with, you won’t have to worry about whether or not you’ll get the loan you need.
In order to get pre-qualified, you’ll have to provide a bank or money lender with a large amount of financial information. Generally speaking, you’ll want to provide evidence of your income and assets, as well as any information about the debt that you have outstanding.
At this time, the bank is not going to actually go through the work of verifying this information. They are going to take you at your word. Based on the information that you’ve provided, the bank will let you know if you are likely to be approved when you do apply for real.
The key thing to remember here is that is this approval is hypothetical only. There is no guarantee that your loan will be approved because there is no evidence yet that the information that you have provided is actually accurate.
Why Seek Pre-Qualification?
It may seem pointless to go after pre-qualification from a bank or lender when you could just go ahead and try and get approved for a loan. However, there are actually a great many reasons why pre-qualification will be worth looking into.
For one, getting pre-qualified doesn’t require the money lender to pull your credit. That means there should be no real impact on your credit score. For this reason, there will also be no fees or costs associated with getting pre-qualified.
You can pre-qualify for a home loan totally free of charge.
This can be advantageous for first-time homebuyers who want a sense of how large of a loan they’ll be able to get from a bank. If you don’t know how far your personal financial profile can take you, a pre-qualification is the simplest, cheapest, and fastest way to find out.
At the end of the day, all of the benefits of getting pre-qualified have to do with you, the future buyer. For more substantial impact, however, you’ll have to look into getting pre-approved.
What Does It Mean to Be Pre-Approved?
Pre-approval is a step past being pre-qualified. To be pre-approved, the bank or money lender will need to have actually put the work in to verify the financial information that you’ve sent to them.
Yes, that means you’ve been approved by a lender for a specific loan amount. You will receive a letter from the lender in question that states your approval and how much the loan in question is for.
In order to receive this kind of pre-approval, you’ll need to provide a lot more evidence of your claims to the lender in question. That includes pay stubs and statements that will support your income claims, a proper credit check, and so on.
The benefit of getting pre-approved means that you’ll have concrete evidence of your ability to get a mortgage and obtain the kind of loan that you need. This can give you the upper hand in negotiating with home sellers and might make you the favorite over other options clamoring for the home in question.
It can also make the closing process in general come about faster.
Is Loan Pre Approval the Same as Getting a Loan?
A distinction here must still be made. A lot of people assume that when they are pre-approved for a loan, that the loan is now there’s to take. The truth is that getting pre approval does not actually guarantee you a loan.
There are still more steps that will need to be taken. You’ll have to finish filling out a lengthier application, go through an official underwriting process, and wait for a final stamp of approval from the bank.
However, a pre-approval can look very good when applying for a home. It shows a home seller that you’re serious and you’ve done your homework. It can help quiet their concerns that you might not be able to secure the loan you need.
There are many great reasons to get pre-approved when trying to buy a new home, as it really can make the difference between landing a sale and having a home pass you by.
Understanding Pre Approval vs Pre Qualified
If you’re looking to secure a new home in the near future, you’ll need to understand the difference between pre approval vs pre qualified. While these terms may be similar, the distinction between them can be quite stark.
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