In order to be granted a mortgage, you will need to prove to lenders that you have the funds available to make the payments on it. Unless you have hundreds of thousands of dollars at your disposal to spend on a home, you are going to need to obtain a mortgage. Now, you have probably heard of both a mortgage pre-approval and pre-qualification. But, what exactly is the difference between pre-approval and pre-qualifying for a mortgage?
When you pre-qualify for a mortgage, it means that the lender has analyzed your credit and determined that you will most likely be eligible to receive a loan of up to a specific amount of money.
The keyword here, though, is “most likely.” This means that mortgage pre-qualification is merely an estimation, based on the financial documents you provided for the lender and his or her evaluation of it. This evaluation may not have looked into your current credit score or past bank statements, as it only considers the documents that you submitted to the lender.
A pre-qualification, therefore, is helpful if you have little idea of what mortgage you would qualify for based on your finances.
On the other hand, when a lender grants you pre-approval for a mortgage, it means that you are indeed eligible for a particular mortgage amount. This amount is determined as a result of an underwriter’s careful examination of all of your financial documents. These documents include your credit report, pay stubs, bank statements, salary, assets, and obligations. Unlike for a pre-qualification, a pre-approval will analyze all of your financial information.
In addition to providing the amount you are guaranteed to qualify for, mortgage pre-approval will give you a competitive advantage in the housing market. Most sellers will favor a buyer that has been pre-approved for a mortgage.
To summarize, a mortgage pre-qualification serves as a way for a home buyer to figure out approximately how money a lender is open to giving them. A pre-approval gives the buyer the exact mortgage amount that they qualify for and looks better in the eyes of sellers.
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