Although sometimes used interchangeably, pre-qualification and pre-approval are two very different processes that every prospective home buyer should understand.
What Does It Mean To Get Pre-Qualified?
The first step of the home buying process should be a mortgage pre-qualification. This is where you share basic financial information with your mortgage lender, including your gross income and assets. A credit report will be pulled for a pre-qualification and is how the Mortgage Loan Officer and Underwriter can see your liabilities and credit history. With this information, the lender is able to give you an estimate of how much home you can afford and how much you can borrow.
Getting pre-qualified takes just a few minutes to fill in some general information online and is absolutely free. A Mortgage Loan Officer (MLO) will contact you when we receive a pre-qualification application. The MLO will review the application with you and complete any missing information. Additionally, they will be able to evaluate your mortgage options and help you determine what mortgage solution is ideal based on your financial situation and goals.
Once the lender receives your financial snapshot, they will review the information, and if approved, you will receive a pre-qualification letter within 24 to 48 hours. The pre-qualification letter has a list of requirements in order for the lender to give you full loan approval.
With a pre-qualification letter in hand, you now have an estimate of what you can borrow and can begin shopping for homes that fit your borrowing capacity.
Why Get Pre-Qualified?
A pre-qualification is the best way to find out what you may be able to afford. This type of application may also alert you to some information in your credit report that may prevent you from buying a home right now. Some realtors may not want to show you homes until you have a pre-qualification letter. This usually happens with more expensive homes. The worst feeling is finding the perfect home and then realizing it is out of budget.
What Does it Mean to Get Pre-Approved?
Getting pre-approved means your mortgage is approved pending the outcome of the appraisal and title commitment. Unlike pre-qualification, a pre-approval takes a deep dive into your financial picture. The information needed is greater and more in-depth. You’ll submit a full mortgage application at this point, and a Mortgage Loan Officer will review your application with you to help determine which mortgage product is right for you, just like they do for a pre-qualification. The lender will pull your credit report and collect supporting documentation from you. The application is then given to an Underwriter for a full review. Once an Arbor Financial Underwriter approves the application, the approval is good for 120 days.
When you have a signed purchase agreement, the Mortgage Loan Officer will give you a loan estimate, lock in your interest rate, and have you sign all application documents.
At Arbor Financial Credit Union, a pre-approval means you can be confident in knowing the loan amount you are approved for. With this information, you can start searching for a starter home - or the home of your dreams.
Things to Know About the Pre-Approval Process
You can get pre-approved at any time during the house-hunting process; however, if you apply for a pre-approval prior to finding a home, then your completed application can be processed quicker. The pre-approval is good for 120 days. If you’re unable to find a home within that timeframe, don’t worry: we’ll just get updated information from you. It’s also important to note that once you're pre-approved, you will want to avoid making any large purchases, like buying a new car, putting furniture on a credit card, opening a new line of credit, etc., as these actions could affect your credit and therefore, your pre-approval. Changing jobs can also affect your pre-approval, so keep that in mind while house hunting.
Now that you’ve got a better grasp on the distinction between pre-qualification and pre-approval, contact our mortgage team or give us a call at 269.544.3105 . We can help get you started on the right path to the house of your dreams.