What is the difference between pre-qualification and pre-approval?

A pre-qualification can give you a ballpark estimate of what you can afford. A pre-approval is where the real magic happens.

Mortgage pre-approval usually specifies a term, interest rate, and mortgage amount. Lenders will project the details based on your current income and credit history at the submission. The pre-approval is typically valid for 90-120 days from your application submission, assuming various conditions are satisfied.

There are three benefits to pre-approval:

1. It confirms the maximum amount you can afford to spend

A pre-approval makes the search easier for you. It helps your realtor find the best home in your price range. The temptation will always be to start looking at the top of your budget. It is important to remember that there will be additional fees. These include mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

2. It can secure you an interest rate for 90-120 days while you shop for your new home

A pre-approval does not commit you to a single lender. It guarantees the rate offered to you. This rate will be available to you for 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates decrease, you can still have the lower rate.

3. It lets the seller know that securing financing should not be an issue

Lastly, pre-approval lets the seller know that you can make the purchase. It can be helpful in competitive markets where many offers may be coming in, as it helps to inform the seller that you’re a sure thing versus other potential bidders who may not have pre-approval.

Remember that once you get your pre-approval, you will want to ensure not to jeopardize it. Until your mortgage application and sale are completed, be sure you do not quit or change jobs, buy a new car or trade up, transfer large sums of money between bank accounts, leave your bills unpaid or open up new credit cards. You do not want your financial or employment details to change until you have completed the new mortgage.

If you have questions or want to begin your pre-approval process, don’t hesitate to reach out to me today!