Both pre-qualification and pre-approval for a mortgage involve a review of an applicant’s credit report. The difference is the degree of credit review. Pre-qualification involves a quick review of one’s credit and only provides a potential borrower with a general idea of how much mortgage they could qualify for and under what terms. Pre-approval involves a full credit review, while only offered for a limited time window, provides the potential borrower with a solid offer of credit from a lender with which they can use to make good faith offers on homes for sale.
What factors are considered for mortgage pre-approval?
Lenders verify certain borrower information before providing a pre-approved offer. These include verification of employment, income, assets and credit score. A full credit report and credit score are pulled at the time of application vs. a limited (soft pull) credit report that is often used with pre-qualification offers.
Why is it important to get pre-approved for a mortgage?
Getting pre-approval for a mortgage gives a person bargaining power since they have mortgage financing already lined up and can therefore make an offer to the seller of a home in which they are interested. With the competition level at all-time highs, having a pre-approval letter is what most sellers expect to see when offers are made.
How much am I approved for vs how much can I afford?
While it might seem like common sense that if you can get approved for an amount, it means you can afford that amount, but it’s extremely important to look at your monthly budget as well as local taxes and insurance to see what your total mortgage payment will be. Often, buying at the top of one’s pre-approved amount can stretch a budget beyond what is comfortable or sustainable, especially if property taxes jump a large percentage in a short period of time. Taking the time to run your potential home through a mortgage calculator can help you determine what amount you are comfortable offering on a home. There are several online mortgage calculators you can use such as Nerd Wallet, Forbes, and MorgtageCalculator.org.
Talking with your agent is helpful to understand the mortgage pre-approval process, as they have your best interest at heart and can connect you with financial professionals and lenders. Remember, when you need someone to lean on, lean on G! Meet our team of experienced agents, and contact us to start the process of finding your next home.