{"id":5057,"date":"2021-11-02T15:27:19","date_gmt":"2021-11-02T15:27:19","guid":{"rendered":"https:\/\/www.guidanceresidential.com\/resources\/?p=5057"},"modified":"2024-11-14T14:54:03","modified_gmt":"2024-11-14T14:54:03","slug":"pre-qualified-and-pre-approved-whats-the-difference-guidance-minute","status":"publish","type":"post","link":"https:\/\/www.guidanceresidential.com\/resources\/home-buying\/pre-qualified-and-pre-approved-whats-the-difference-guidance-minute\/","title":{"rendered":"Pre-Approval vs. Pre-Qualified: What’s My Next Step?"},"content":{"rendered":"\n

Purchasing a home can be challenging, especially when inventory is low and home prices are soaring. On top of this, investment firms are <\/span>buying homes as money-making opportunities<\/span><\/a> \u2014 outbidding the average buyer. How can you compete? Consider taking steps to position yourself as a desirable buyer. One way is to talk to a home financing company to weigh your options early in the home buying process. As you do this, you may come across two terms as you get ready to apply for financing \u2014 pre-approval vs. pre-qualified. Here, we\u2019ll uncover what each term means and which one you should get to set yourself up for success.  <\/span><\/p>\n\n\n\n

Please note some companies use these terms interchangeably. Either way, pre-qualification and pre-approval letters are not guarantees. You are not making a commitment to use that company when going through the pre-qualification vs pre-approval processes.<\/span><\/p>\n\n\n\n

What Does Pre-Qualified Mean? <\/span><\/h3>\n\n\n\n

When you are pre-qualified, you\u2019ve taken the first step to home financing. It\u2019s the preliminary step to see how likely you, the prospective buyer, are able to qualify for financing. A pre-qualification letter will give you an estimate of how much you may be able to afford. This is based on the information you provide. To receive the letter, you will self-report information like your income and debt, but no documentation is submitted. This is why the pre-qualification letter is just an estimate. The home financing company will not have had a chance to perform an in-depth review of your finances. A<\/span> credit check is <\/span>not required.  <\/span><\/p>\n\n\n\n

Again, this is the first step. But it may be worth getting <\/span>one to point you in a direction for an estimated budget as you begin your home search.    <\/span><\/p>\n\n\n\n

What Does Pre-Approval Mean? <\/span><\/h3>\n\n\n\n

According to The Mortgage Reports<\/span><\/a>, 42 percent of homebuyers go shopping for a home without getting pre-approved first. Pre-approval letters show a seller that you\u2019re a serious buyer<\/span>. They can sometimes help make offers stronger if there are multiple on the table. Also, a pre-approval letter <\/span>makes your home search easier. It allows you to know how much a home financing company is willing to provide you. With these benefits, it\u2019s worth taking the time to get one.  <\/span><\/p>\n\n\n\n

A pre-approval means a home financing company has performed a comprehensive analysis of your finances to find out how much they are able to provide you to finance your home. With a pre-approval, you are given a specified amount that is valid for a set length of time under specific conditions. The information you provide will be verified, unlike being pre-qualified, where you receive an estimate based on what you give the home financing company. To get a pre-approval, you\u2019ll need to provide your financial information, including bank statements, income verification, and tax returns. Getting a pre-approval may also take a bit longer because these documents will be reviewed.  <\/span><\/p>\n\n\n\n

Furthermore, your credit will be checked. Your credit score shows your ability to make payments on time. And this needs to be verified. Find out <\/span>how getting pre-approved affects your credit score<\/span><\/a>. <\/span><\/p>\n\n\n\n

Pre-Approval vs. Pre-Qualified: What\u2019s the Difference? <\/span><\/h3>\n\n\n\n

According to the Consumer Financial Protection Bureau<\/span><\/a>, there\u2019s not a lot of difference between a pre-qualification letter and a pre-approval letter. Both are letters from a home financier that states how much they are willing to provide you for financing a home. The differences arise depending on the company and whether the term is used interchangeably. But generally, when it comes to pre-qualification, credit history does not need to be checked, while a pre-approval requires it. <\/span><\/p>\n\n\n\n

Additionally, a pre-qualification does not show a rate or review of your finances, while the process to receive a pre-approval letter does. A pre-qualification is an estimate since your information isn\u2019t reviewed in-depth<\/span>. <\/span>A pre-approval will tell you what you will actually be provided were you to choose the company as your home financing provider. You also do not typically need to be pre-qualified first in order to get pre-approved<\/span>. You can go straight to the pre-approval process if you choose to.  <\/span><\/p>\n\n\n\n

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