When embarking on the journey to buy a home, securing financing is one of the first and most crucial steps. Two common terms you'll encounter in this process are "pre-approval" and "pre-qualification."
Understanding the difference between these can help you make informed decisions and strengthen your position as a buyer. Let's explore these concepts together:
What is Mortgage Pre-Qualification?
A mortgage pre-qualification, sometimes referred to as pre-authorization, is an initial step in the mortgage application process. It provides a general idea of how much you might be able to borrow based on self-reported financial information. Here's what you need to know about pre-qualification:
Basic Financial Snapshot: Pre-qualification involves providing basic yet unverified information about your income, debts, and assets. This is usually a quick process and may be done online or over the phone.
No Credit Check: Typically, a pre-qualification does not involve a credit check, also known as a hard credit pull, which means it won't impact your credit score.
Non-Binding Estimate: The amount you receive is a rough estimate and not a guaranteed loan amount. It gives you a starting point to understand your potential buying power.
While a pre-qualification can be useful for getting an initial sense of your budget, it lacks the rigor and assurance that come with a mortgage pre-approval. A pre-qualification should only be used as a very rough estimate to get a starting idea of how much house you may be able to afford and should not be relied on as overly accurate.