Are you in the market for a new home? If so, you may have come across the terms “pre-qualified” and “pre-approved” when you started the loan process. These two terms are often used interchangeably but there are significant differences between them. Here’s a breakdown of the differences between these two important steps in the home-buying process.
What does pre-qualification mean?
Pre-qualification is often the first step buyers take during the financing process. When you get pre-qualified, lenders look at your credit score and financial history to provide an estimate of how much of a mortgage loan you might qualify for. Remember: this is not a guaranteed amount! Your actual loan amount may vary based on a number of different factors.
The estimated loan amount your lender provides during the pre-qualification process is still beneficial. Being pre-qualified helps narrow down your new home search, as it allows you to prioritize your list of homes based on your financial ability to purchase them. Overall, getting pre-qualified can help bring clarity and confidence into the home-buying process.
What does pre-approval mean?
Pre-approval is the second step in getting a mortgage. The pre-approval process is more involved than the pre-qualification process. It requires submitting additional documentation to the lender. This documentation includes items like tax returns, pay stubs, and bank statements. Lenders will also review your income, assets, existing debt, and credit score to provide the amount you are approved to borrow and your estimated interest rate.
There are several benefits of getting pre-approved before buying a new home. Just like pre-qualification, you’ll have a better idea of what your homebuying budget will be and you will be able to plan for your monthly mortgage payments. Pre-approval also shows real estate agents that you are serious about purchasing a new construction home, so they will give you great service. It also will give you room to negotiate the home price and can reduce the time it takes to close on a purchase.
Pre-qualified or pre-approved: how to choose?
So now that you know the difference between being pre-qualified and pre-approved, which one should you get? The answer may depend on your individual circumstances. If you’re just starting out in your home search, then pre-qualification can be a good first step. This will give you an idea of how much money you can borrow and help narrow down your search for homes within your budget.
However, if you’re further along in your home search and ready to make an offer, then pre-approval may be necessary since many sellers and Realtors prefer buyers who have already been approved for financing. Regardless of which route you choose, working with a qualified lender is key to having a successful homebuying experience.
If you have questions about the loan process, Hayden Homes is here to help with any questions you might have! We build new single-family homes in Idaho, Oregon, Montana, and Washington for every stage of life. Learn more about our homes, new home communities, and the home buying process on our website. We’re looking forward to welcoming you into a Hayden Homes community!