If you want to achieve success in the future, you must prepare for it because without proper preparation, you will be ill-equipped to handle the challenges of the future. While that analogy may not work for home buying, you will find that most homebuyers end up not preparing. The common misconception is that if a homebuyer has been pre-qualified for a mortgage, they assume they have been pre-approved for the home loan.
However, there is a massive difference between the two terms, as they mean completely different things. It is important that you understand the difference between them, so that you don’t end up making the same mistake. So, let’s check out the difference between pre-approved and pre-qualified, because making a mistake can be disastrous for homebuyers.
What does pre-qualified mean?
If you have pre-qualified for a mortgage, it just means that you have cleared the first stage. Once you have handed over your financial records, including your assets, income, and debt, the lender will give you a rough estimate for the mortgage you can qualify. This can be done over the internet or over the phone, and doesn’t require an in-depth look at your credit report or tax returns.
Pre-qualification is the stage where you can discuss your needs or goals with the lender regarding your mortgage, and the lender can provide you with different mortgage types. So, getting pre-qualified for a mortgage in no way guarantees that you will be getting the loan, because you haven’t been approved.
What does pre-approved mean?
Once you have pre-qualified the next step is getting pre-approved, and this is where the entire process gets official, and you learn whether you are getting the loan or not. You will complete a mortgage application and then provide the lender with all the document to performance a comprehensive current credit rating, and financial background check. Once the check has been completed, the lender will give you details about a specific mortgage amount for which you have been approved.
This will also include the interest rate you will be charged, and whether you can lock it at a specific rate. Once you have been pre-approved, you will get a written conditional commitment with the exact loan amount, so that you can start looking for homes underneath that price range.
The Bottom Line
You should keep in mind that pre-qualified and pre-approved aren’t the same thing, and you shouldn’t assume that bank has granted you the loan. If you get mixed up between the terms, you could end up making the mistake of buying a house before meeting with the bank and doing your homework on getting pre-approved.