When you’re researching home financing options, it’s easy to get a lot of the terminology mixed up. From understanding the different types of loans to remembering the difference between a mortgage pre-qualification and a mortgage loan approval, there’s a lot of new vocabulary to understand. We get it. Buying a home can be stressful, but it doesn’t have to be. To help you start off on the right foot, we’ve created a handy checklist for the start of your journey — the pre-qualification process!
PRE-QUALIFICATION VS. PRE APPROVAL (LOAN)
Pre-qualifying is just the first step. It gives you an idea of how much of a loan you'll likely qualify for.
Pre-approval is the second step, a conditional commitment to actually grant you the mortgage.
Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it doesn't mean much at all if you don't provide accurate data.
You must complete an official mortgage application to get pre-approved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. The lender can pre-approve you for a mortgage up to a specified amount after reviewing your finances. You'll also have a better idea of the interest rate you’ll be charged on the loan at this point, because this is often based in part on your credit score, and you might even be able to lock in an interest rate. Some lenders may charge an application fee for pre-approval.
MORTGAGE LOAN CHECKLIST
Now that you are Pre-Approved, you know how much home you can apply for.
You are ready to shop!