If you’re like most potential home buyers, you’ll need a mortgage. That said, as complicated and often lengthy as the whole process is, there are a few things you can do ahead of time to make the whole thing go more smoothly. One of those things is a mortgage pre-approval (not to be mistaken for a pre-qualification).
First, let’s talk about loan pre-qualification. The simpler of the two, a pre-qualification looks very broadly at your financial situation and gives you a general idea of how large of a loan you may qualify for. It doesn’t look at your credit report, or your financial situation in-depth. It can be a helpful step, and an opportunity to talk to a lender about your financial and home-buying goals. Since the pre-qualification process is so simple, and doesn’t take all of your financial information into account, it carries a lot less weight to a seller than a pre-approval.
A pre-approval is a much more involved process, which includes an extensive financial background and credit rating. You’ll fill out a mortgage application, and generally have to pay an application fee. This gives a specific mortgage amount for which you are approved, and at times you are able to lock in a specific interest rate. After pre-approval, you’ll receive a conditional commitment from the lender, which will allow you to look at homes at or below that price level. This is obviously a huge advantage with a seller, since you’re automatically one step further along in the process.
Another advantage to completing either of these steps is that you’ll know in advance how much you can afford, and you’ll be able to move quickly when you find the right place. In a competitive market, pre-approval can be the difference between getting the house of your dreams, or losing out.
