When purchasing a Southwest Colorado Resort home, a buyer needs to decide how they’re paying for the loan: with cash or a mortgage. If going the mortgage route, the buyer needs to apply for their loan of choice. When the buyer goes to apply, they may see two different options: get pre-qualified and get pre-approved. These two terms may sound similar, but they mean very different things, and choosing the wrong one at the wrong time can throw a wrench into buying a home. Here is what all home buyers need to know about the difference between getting pre-approved and pre-qualified for a loan.
Pre-Qualification for a Loan
When applying for a loan, pre-qualification is effectively the step that comes before pre-approval, but it isn’t always required. Some lenders will let a buyer go straight into the pre-approval process without getting pre-qualified. Buyers can get pre-qualified online or over the phone. All the required information to get pre-qualified is submitted by the buyer, and it may or may not be completely correct.
Getting pre-qualified can take several days, but if successful, the buyer will get a letter proving that they’re pre-qualified to borrow a certain amount of money. However, it isn’t guaranteed that the buyer will actually be allowed to borrow the money. Pre-qualification acts as an estimate, and it isn’t official. A buyer will need to look into their lender of choice to see if they require pre-qualification before pre-approval. If they don’t, the buyer can skip onto pre-approval.
Pre-Approval for a Loan
Getting pre-approved is by far the more important of the two. While pre-qualification is a general look at the user-submitted information, the pre-approval application requires a much deeper dive into the applicant’s past. Pre-approval requires a credit history check, a review of their finances, and so on. Getting pre-approved for a mortgage will also require documents that show proof of income, proof of assets, and proof of employment. Individual lenders may also require additional information or documents, so be sure to check with the lender to be prepared.
Like the pre-qualification process, pre-approval can take up to three days to process, and it grants written proof that the buyer is allowed to borrow money from that specific institution. While it’s always free to apply for pre-qualification, the buyer may be subject to pay an application fee for pre-approval. On average, the fee costs $300-400, but not every lender charges this application fee.
Why You Need to Get Pre-Approved
Being pre-approved for a loan provides a lot of advantages that buyers will want to have at their side. For instance, the pre-approval process can take several days, and doing it ahead of time will mean less waiting during negotiations for a home. Getting pre-approved also gives the buyer written proof that they’re allowed to borrow money. Buyers can submit the proof of pre-approval with their offer, and that can be appealing to the seller. Being pre-approved also means that closing on the home will be much faster. As stated earlier, getting pre-approved can take one to three days, and that’s a lot of time to waste when purchasing a home.
All buyers need to be familiar with the differences between being pre-qualified for a loan versus being pre-approved for a loan. Although these terms may seem similar, they’re extremely different. Treating them as interchangeable can lead to big problems down the line. It’s best to get any confusion out of the way early to help create a smooth home sale later.