Pre-Qualified vs. Pre-Approved – What’s the Difference?

The home buying process can begin one of two ways: finding a house you love and hoping you can afford it, or talking to a mortgage broker about what you can afford, and using that information to find a great house. I bet you can guess which path leads to happy people and which leads to headaches.

Shopping for a home is exciting, I get it, but there’s nothing worse than having your offer accepted, only to have it all fall apart because you didn’t have your ducks in a row.

Many people go into a home buying situation thinking that if a lender has pre-qualified them, they have been pre-approved for a loan. These two terms sound similar, but have a completely different meaning.

 What Does Getting Pre-Qualified Do for Me?

Getting pre-qualified is the first step in obtaining financing for your home, and is a simple conversation that can be done over the phone, online, or in person. Pre-qualification is a surface level summary of your financial income and expenses that gives you an idea of what the “Average Joe” in your position should expect to qualify for. It’s a good first step, but is nothing more than a ballpark figure.

Why Should I Get Pre-Approved?

Getting pre-approved for your mortgage is the next step, and is much more involved. Your mortgage advisor will sit down with you, walk you through an official mortgage application, and conduct an extensive financial background and credit check. It’s essentially just like getting a mortgage, but leaving the “address” section blank.

Don’t worry, it’s nothing to stress about, it’s just part of the process. In the end, you’ll know exactly what your maximum budget is, what your interest rate will likely be, and you may be able to lock in your interest rate (if that’s something that appeals to you).

You’ll be given a conditional commitment letter that you can present to the seller of a property that certifies the lender will provide you with the funds to move forward with your offer, if you so-choose. This gives you leverage in your deal that many other buyers won’t have, and makes it more likely they’ll accept your offer. It also allows you to move quickly when you find a home that you love, instead of waiting for your financing to be approved… and potentially losing the deal to someone else.

If you opt not to get pre-approved, don’t be surprised if you find yourself losing in bidding situations to a buyer with their commitment letter in-hand. You owe it to yourself to come to the table with all your cards at the ready.

The Bottom Line

Getting pre-approved is more work than getting pre-qualified, but in the end you walk away confident in what you can afford. Knowing this will save you from wasting time looking at homes you can’t afford anyway, and make your offer that much more appealing to a seller.

At VictoriaHomes.com we work with the best mortgage advisors on the island, and make sure we get you pre-approved before you begin your home buying process. To find out how you can get preapproved check out our mortgage advisors here, and find out why going to the bank is simply not enough in 2018. For help finding the right home for your needs, or if you’re just looking for someone to point you in the right direction, visit us on Facebook or at VictoriaHomes.com