Pre-Qualification VS. Pre-Approved
Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow.
Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it doesn't mean much at all if you don't provide accurate data.
The initial pre-qualification step allows you to discuss with your lender any goals or needs you might have regarding your mortgage. Your lender can explain your various mortgage options and recommend the type that might be best suited to your situation.
Getting pre-approved is the next step, and it's much more involved. A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a pre-approval is the definitive word.
You must complete an official mortgage application to get pre-approved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can pre-approve you for a mortgage up to a specified amount after reviewing your finances. You'll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate.
You’ll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. This obviously puts you at an advantage when you're dealing with a seller, because he'll know you’re one step closer to getting an actual mortgage.