WHAT IS THE DIFFERENCE BETWEEN HOME LOAN PRE-QUALIFICATION AND PRE-APPROVAL?
PRE-QUALIFICATION
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 a few minutes
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.
Your pre-qualified amount isn't a sure thing because it’s based only on the information you've provided. It's just the amount for which you might expect to be approved. A pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer, who has been more thoroughly investigated.
Pre-qualifying can nonetheless be helpful when it comes time to make an offer. “A pre-qualification letter is all but required with an offer in the property market, “Sellers are savvy and don't want to enter into a contract with a buyer who can’t perform on the contract.
PRE-APPROVAL
Getting pre-approved is the next step after a pre-qualification 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 home loan 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 home loan 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.
You will also 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 home loan.
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