If you are currently in the market to purchase a home, you’re probably shopping around for a mortgage loan that best suits your needs. While doing so, you’ll probably come across offers that boast that you are either already “pre-approved” or “pre-qualified” for the mortgage loan. However, is it all really as simple as it sounds and what exactly is the difference between these two types of home mortgage loans?
Pre-Qualified Home Mortgages
Let’s start with pre-qualified home mortgages. In the home buying process, getting a pre-qualified mortgage loan is an important first step as it will allow you to determine just how expensive of a home you will be able to afford. Pre-qualification typically involves you getting a no-obligation quote from a potential mortgage lender. What you have to do is provide some basic personal information about yourself including:
- Credit
- Assets
- Debts
- Income
In return for supplying this information about yourself, the lender will go ahead and provide you with a quote without running your credit. This puts you at a great advantage for comparison home loan shopping.
One of the greatest benefits to getting pre-qualified for a mortgage loan is that the lender doesn’t check your credit. This is definitely a good thing because every time lending institutions run your credit, it can negatively affect your credit score. How? The mentality behind this idea is that if your credit is checked frequently and no loan is granted or taken out as a result, you must not have been eligible for it due to your poor credit. To avoid such assumptions, you should only have lending institutions run your credit when absolutely necessary.
The pre-qualification process also enables you to compare the mortgage rates and terms of several different lenders. When you go through the pre-qualification process, you have the opportunity to express any questions or concerns you may have regarding your mortgage with the lending company. You will also learn more about your mortgage loan options and receive assistance on choosing the type of mortgage that will be right for your individual home buying needs and situation.
Pre-Approved Mortgage Loans
On the flip side, pre-approval generally implies that you have already submitted a mortgage application and perhaps have even paid an application fee to the lender. In the case of pre-approved mortgages, once your credit has been run and all of your documents have been verified, the mortgage lender is required to provide you with a good faith estimate of all related loan expenses. However at this point in the process, you should know that you are not entered into any sort of loan contract with the mortgage lender. While you are in no way obligated to get a mortgage through the lender, there is often a fee associated with completing the pre-approval process. This is largely due to the fact that lenders spend a great deal of time and effort on the pre-approval process, including the handling of the loan paperwork and checking your history.
Being pre-approved also serves to show you as a “serious” potential home buyer to a seller. Additionally, if you’re pre-approved, you are able to maneuver through the buying process quickly once you find your dream home. You have the advantage of skipping through lengthy paperwork and can avoid the risk of loosing the home you want to purchase to another pre-approved loan buyer.
Buying a home is one of the biggest decisions you can make in your life. Therefore, before rushing into anything permanent, you should take the time to do your research and find out about all of your available home mortgage options.