What Does it Mean to Be Pre-Qualified for a Home Loan?
When shopping for a home, many buyers decide to get pre-qualified with a mortgage lender. This process helps buyers figure out how much they can potentially qualify for when they purchase a house. This term is often referred to as pre-approved, but a closer examination shows that they are two separate terms.
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Function
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The purpose of pre-qualification of a mortgage loan is to give potential buyers an idea of how much they can afford. With this process, you speak to a lender and give basic information about your financial situation and your credit history. The lender will then do some calculations and give you a price range of houses that you can look at. Going through the pre-qualification process can help buyers know if they would qualify for the house they want.
Pre-Qualified vs. Pre-Approved
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The terms "pre-qualified" and "pre-approved" are often used interchangeably for one another although they are very different terms. If you get pre-qualified, you are not giving any specific information to the lender that you talk to. They will not run a credit check or verify any of the information that you give them. With the pre-approval process, the lender actually checks your credit and gets you pre-approved for a specific mortgage amount. The pre-approval process is much more involved than the pre-qualification process.
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Benefits
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The biggest benefit of pre-qualification is that it gives you a specific dollar figure that you can use when shopping. If you supplied the lender with accurate information about yourself, you should feel better about your odds of getting approved for a mortgage in that amount when the time comes. Another benefit of getting pre-qualified is that sellers of property know that you are serious about buying a house. You have taken an extra step that many other shoppers do not.
Warning
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Just because you get pre-qualified for a mortgage, this does not necessarily mean that you can get the loan that you want when it comes time to do so. You may run into some issue along the way that precludes you from getting the loan you want. The lender will do a much more thorough investigation into your financial matters and your credit history when you apply.
Considerations
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If you are simply beginning the process of shopping for a home, pre-qualification can provide you with some nice benefits. It will give you a good starting point to begin your search. If you are further along in the process and you are seriously considering buying a house in the immediate future, you may want to shift your focus to pre-approval instead. This way, when you find the exact house that you want, you can move on it quickly.
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References
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