What does getting Pre-Qualified mean?
A Pre-Qualification Letter is provided by the lender, and it states the approximate amount of money that the lender has decided you will probably be eligible to receive from a loan company. All you have to do to get pre-qualified is provide the lender your amount of income and any outstanding debt. The lender will then take that “unverified” information and determine how much money you are likely to be approved for by a lending company. However, there are no guarantees you will actually be approved for this amount. The benefits of obtaining a Pre-Qualification Letter is that the lender doesn’t have to run a credit check, there are no associated fees, and it helps provide you with an estimate of what you can afford. The disadvantage is that some sellers will not take your offer seriously until you have been pre-approved.
What it means to get Pre-Approved?
Being “pre-approved” means you’ve actually gone through the process of being approved by a lender for a specific loan amount. To get pre-approved, you will need to provide documented financial information like pay stubs, w2 documents, and bank statements, and a credit report will be run. This information is reviewed by the lender. Once the lender completes his/her analysis, you will receive a letter that states an “approved” loan amount for which you currently qualify. The benefits to having this letter is to give you negotiation power, and it allows for you to close faster. There are no fees associated with a pre-approval; however, it does require paperwork, documentation, and a small hit to your credit score.
Which One Should I Get?
Reasons to get a Pre-Qualification Letter:
Set your home-buying budget. Want to know price point you can afford. Not ready to buy yet, just browsing.
Reasons to get a Pre-Approval Letter:
Sets your home buying budget. Want to know price point you can afford. Buying within 90 days.