Often when first time homebuyers start looking for their home, one of the first questions they encounter is, should I get pre-qualified or pre-approved for a mortgage?  And often, they are not entirely sure of the difference between the two.  Some websites would have you believe that getting pre-qualified is all you need to do once you’re ready to put in an offer on your home.

Is that the case? No.

Getting pre-qualified simply means that that you have given a bank or lender your debt, income and assets. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. It’s a good start, but not the whole picture.

With pre-approval, the lender has examined credit report, and all supporting documents for a mortgage application (including pay stubs and tax returns).  If approved, the lender provides a mortgage amount for which you are pre-approved, and you will have a general idea what interest rate you will be charged, and sometimes may even be able to lock in a rate.

A pre-approval is a much stronger statement of the buyer’s ability to pay the mortgage than the pre-qualification, and the presence of the pre-approval along with the offer puts that buyer in a stronger position than one who is simply pre-qualified.  And in a multiple offer situation (which we are seeing frequently in the real estate market in Cranford, Westfield, Fanwood area now), that may be the difference between getting the house or losing out and returning to house-hunting.

I hope that explanation helped! Did it? What has been your experience with getting pre-qualified or pre-approved? Add a Comment and let us know!