Two often confused terms in the home buying process are a mortgage loan pre-qualification and home loan pre-approval. Here’s what you really need to know about each one.
“The best time to get a pre-qualification is right at the beginning of your home buying process, before you even start looking at houses.” Says Julie Mohs of Deerwood Bank
A mortgage loan pre-qualification is simply an estimate of how much house you can afford and how much money a lender would be willing to loan you. This involves either sitting down with a lender or talking with one on the phone, and providing information on your income, assets, debts and a potential down payment amount. The lender would then provide you with an estimated figure in writing of how much they think you could afford to pay for a monthly mortgage. There is no cost involved and there is no commitment on either side. This estimate is just helpful in figuring out if buying a home is a viable option, and if so, what your price range would probably be.
Pre-Approval “With a pre-approval in hand you can start your home shopping – real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place.” Says Karen Owen of Deerwood Bank
Getting pre-approved means that you have a tentative commitment from a specific lender for Mortgage funding. In this case, you provide a home loan lender with actual documentation of your income, assets, and debts. This process typically requires an application fee as well, since the bank will run a credit check and work to verify all your employment and financial information. Once you are approved, the lender will give you a letter of commitment, stating how much money your bank is willing to loan you for a home purchase. It is important to understand, however, that even a pre-approval is not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy.