When you’re ready to buy a home, you’ll hear a lot about getting pre-approved vs. pre-qualified for a home loan. It’s important to know the difference between the two so you’re ready to go when the time comes to put in an offer on a home.
When you’re getting your finances in order for a mortgage (which is the same thing as a home loan), it’s a good idea to get pre-approved. That’s because the pre-approval process is more rigorous and sellers know this. Sellers are more likely to accept a homebuyer’s offer when they’re pre-approved compared to pre-qualified. Here’s why:
The Difference in a Nutshell
- You tell the bank your financial situation – no documents or proof are required.
- The bank estimates a loan amount they think you could afford, but they don’t run a credit report or actually look at your finances. It’s just a guess on their part.
- You complete an application by providing detailed documentation to prove (key word, here!) your financial status.
- The bank takes a serious, hard look at your financial background, which includes running a credit report.
- This in-depth process determines the actual amount of the loan you can afford and it’s super important because it proves to sellers that you’re serious about buying their home.