Getting a mortgage to buy a home is a complex financial process that is highly regulated to protect consumers. Homebuyers, then, might be confused about the process and what to expect.
If you are considering buying a home with a mortgage, you first want to be pre-qualified for a mortgage. Then, as you search for a home, you want to work with your mortgage broker to be pre-approved. Through this process, your questions will be answered, and you will learn much about mortgages.
What Is a Mortgage Pre-Qualification?
A mortgage pre-qualification is the first step in the mortgage process. Before a mortgage application is submitted, a pre-qualification is given based on financial information supplied to the lender. The pre-qualification is a snapshot showing how much a lender may be willing to loan a buyer based solely on the financial information given to the lender – no documentation is submitted at this point.
A mortgage pre-qualification is not a commitment from the lender to loan a certain amount of money. It is an educated estimate given before the due diligence of the mortgage approval process takes place. This gives homebuyers a place to start and helps them formulate a realistic budget for a new home.
What Is a Mortgage Pre-Approval?
A mortgage pre-approval is a more advanced step in applying for a mortgage. Despite the term, it is not a guarantee from a lender for a home loan. Instead, a pre-approval is granted when a lending agent reviews a prospective homebuyer’s finances and calculates how much they can afford to borrow based on income, existing debt, assets, credit history, and other relevant factors.
Mortgage pre-approvals are only valid for a set amount of time, usually 90 days.
A benefit of becoming pre-approved for a mortgage is that sellers and real estate agents take you more seriously as a buyer.
- Seller’s market: Pre-approved homebuyers in a very competitive housing market are taken more seriously when making an offer, and their offers may be given more weight over competing offers.
- Buyer’s market: Pre-approved homebuyers in a less competitive market are better positioned to negotiate on price and seller concessions.
Differences between Pre-Qualification & Pre-Approval
Though there are similarities between a mortgage pre-qualification and pre-approval, and some use the terms interchangeably, they serve different purposes.
A mortgage pre-qualification is an excellent first step to show you how much you can afford to spend on a home while proving that you are a qualified buyer. While it does not serve as a commitment from the lender, a mortgage pre-qualification is essential for homebuyers before they start searching for a home.
A mortgage pre-approval is a more formal process completed by the lender, who assesses the homebuyer’s finances more thoroughly, including their financial documents. A mortgage pre-approval puts a homebuyer in the most vital position to buy a home.
What to Do as a Homebuyer
Sellers and real estate agents want to work with pre-approved and pre-qualified homebuyers, so they don’t waste time showing people homes they can’t afford.
It takes just a few minutes to go through the mortgage pre-approval process, and then you can begin your search for a home with your real estate agent.
While you search for a home with your agent, continue working with your mortgage broker to complete the application process, so you can close quickly once you find a home.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.
Our process of pre-qualifying and pre-approving homebuyers is fast, efficient and thorough, so they can quickly search for a home and close on their mortgage.