Most people who are wanting to buy a home are aware that they must first pre-qualify or be pre-approved for a mortgage. Some individuals use the terms interchangeably, there are significant distinctions that every homebuyer needs to be aware of. Pre-qualification is just the beginning. It provides you a rough indication of the size of loan you might be eligible for. The second step is pre-approval, which is a conditional promise to provide you the mortgage.
Pre-Qualified
In order to get pre-qualified, a borrower must provide their whole financial situation to a bank or lender, including their debt, income, and assets. After carefully examining everything, the lender estimates the amount that the borrower will receive. Pre-qualification is often free and can be completed online or over the phone.
The normal waiting time for a pre-qualification letter is one to three days. Remember that loan pre-qualification does not involve a thorough examination of the borrower's ability to purchase a property or a review of their credit histories.
Pre-Approved
The next, considerably more complicated stage is getting pre-approved. "A pre-qualification is a strong indication of creditworthiness and the ability to borrow," he said. To be pre-approved, the borrower must submit a formal mortgage application and provide the lender with all the necessary information for a thorough credit and financial background check. Following that, the lender will provide pre-approval up to a certain amount.
Pre-approval also provides a clearer sense of the interest rate that will be charged. Several hundred dollars in application fees may be charged by some lenders in order to pre-approve a loan or to allow consumers to lock in an interest rate.
Pre-qualification and pre-approval are two distinct processes. A pre-qualification indicates that the mortgage lender has looked through your financial data and thinks you'll be approved for a loan. The second stage of the loan procedure is pre-approval, which is a conditional promise to lend you the money for a mortgage.