Pre-qualified vs. pre-approved
Ask anyone in the housing industry what the first thing you should do is when planning to buy a home this spring, and they will say get pre-approved. However, that can mean different things to different people. Do they mean pre-approved or pre-qualified? In this competitive market, you must know the difference between these two terms and how they can help or hurt you when making an offer on a home.
First-time homebuyers may not know the difference between a pre-approval and a pre-qualification, and it could cost them the home of their dreams. Although they sound similar, a pre-approval holds more weight for a homebuyer than a pre-qualification. We have a third option at Mortgage Equity Partners, a fully underwritten pre-approval that makes your offer the most competitive.
A pre-qualification is an early step in the homebuying process. When a lender pre-qualifies you, they are basically reviewing debt, income, assets, and credit to provide an estimate of what they think you may be able to borrow. However, it is not a guarantee to get a loan, and the review is not nearly as thorough as a pre-approval.
A pre-approval is when a lender thoroughly checks a borrower’s finances by reviewing their assets, income, debt, and running credit. A lender can provide an accurate amount for which a borrower can qualify by doing this extensive review. Of course, it is still not a guaranteed loan because an underwriter has not reviewed it, but it helps borrowers know what price point they can search for when looking at homes and gives them confidence knowing that they will likely be able to secure a mortgage.
Suppose you want to take it a step further and be the most competitive you can be when buying a home with a mortgage. In that case, Mortgage Equity Partners has a fully underwritten pre-approval program that provides a conditional loan commitment from an underwriter. If you work with a loan officer from Mortgage Equity Partners, we can pre-approve you for a loan even without a property address. If you submit a complete application and provide all your asset and income documentation and authorize a credit check, you can receive a conditional loan commitment from our underwriting team.*
The MEP underwritten pre-approval is a much stronger tool to use in the bidding war than a pre-qualification or a traditional pre-approval. It will get you one step closer to a full mortgage approval since much of the work has already been done upfront. In addition, this completely free service will provide you with conditional loan approval even before you have found your perfect home. With a fully underwritten pre-approval, your offer is as good as a cash offer, and the best part is that it can be used for more than one property until your offer is accepted.
What are the requirements for a pre-approval?
- Proof of income – proof of income generally refers to W2s for the past two years, pay stubs, proof of additional income, and the two most recent years’ tax returns.
- Proof of assets – proof of assets would include bank statements, investment account statements, and evidence of any cash reserves.
- Good Credit – generally, the higher your credit score, the more competitive mortgage interest rate you may receive. Most lenders generally require a FICO score of 620 or higher for a conventional loan.
- Employment Verification – lenders want to see stable employment, and they will call your employer to confirm employment and salary in many cases. Self-employed borrowers are required to supply further documentation.
- Drivers license and social security number
- Approval to run a credit report
What if the lender can’t pre-approve you?
If that is the case, you should work on resolving whatever the issues are. It may mean working to improve your credit score, paying off some debt, or saving for a larger down payment. While it may feel like bad news, it will save you time and effort. You won’t waste time house hunting when you know you won’t get approved for a loan. Don’t despair! Often small changes in your financial picture are all you need to make to get pre-approved.
*subject to final underwriting review and appraisal.