How is pre-approval different from approval?
6 minute read
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July 21, 2022

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Finding the right home for your family—and your budget—takes a little time. 

Not every home will be suitable for every homebuyer. But when you find the perfect place, financing becomes your next priority. 

If you already have pre-approval, you’re closer to homeownership than someone just starting out, but you still need to complete the mortgage approval process. 

If you’ve been looking at homes for a little while, you’ve probably heard that you need to get pre-qualified for a mortgage or get a mortgage pre-approval letter. 

You might be asking yourself, “What’s the difference between pre-approval and approval?” or “Is pre-approved the same as pre-qualified?”

Pre-approval, approval, and pre-qualification are all important steps in the homebuying process, and understanding the role each one plays can give you a competitive edge over other homebuyers. 

What is a mortgage pre-qualification?

Mortgage pre-qualification is the first step toward buying a home, especially if you’re a first-time homebuyer. 

Pre-qualifying for a mortgage takes just a few minutes and gives borrowers an understanding of how much of a mortgage they can expect to qualify for.

How do I get pre-qualified?

To get pre-qualified for a mortgage, borrowers provide information about their financial situation. 

Pre-qualification typically includes answering questions about your income, debt, and any assets you have. Your mortgage lender reviews the financial information you provide and gives you a mortgage estimate. 

 If you’ve requested a pre-qualification letter, in addition to getting the information over the phone, you’ll usually receive it within 2-3 days.  

It’s important to remember that mortgage pre-qualification is based on the information you supply to your lender. It doesn’t typically require an analysis of your credit history, credit report, or credit score.

There’s no fee to get pre-qualified for a mortgage. 

What is a mortgage pre-approval?

Mortgage pre-approval is the second step on your homebuying journey. 

Mortgage pre-approval is when your mortgage lender gives you a conditional or limited offer to lend you the money to buy your home.

Pre-approval is a more detailed process than pre-qualification, and the information you provide is confirmed before approval. 

How do I get pre-approved for a mortgage?

You’ll need to complete a mortgage application and provide documentation to get pre-approved. 

Your lender will review the information you provide—such as bank statements, copies of tax returns, employment verification, pay stubs, social security numbers, etc. 

Most pre-approvals require a credit check or running a credit report to evaluate a borrower’s credit history. 

If borrowing requirements are met, your lender will provide you with a mortgage pre-approval. Most mortgage pre-approval letters state that you are qualified for a mortgage “up to $[dollar] amount.”

Mortgage pre-approvals often include mortgage interest rate information, and depending on your lender, you may be able to lock in that rate.

Mortgage lenders provide their pre-approval in writing, which you can include with your offer to buy a home. 

This can be very advantageous, especially in a competitive housing market, because it lets sellers know 

  • you’re a serious buyer, 
  • you’re financially capable of buying the property, and 
  • you’ve already begun the mortgage process.

Buyers won’t always find what they’re looking for on the first house hunt. If you’re wondering how long a mortgage pre-approval lasts, it will depend on your lender. However, most pre-approvals are good for at least 90 days. 

What is a mortgage approval?

While a mortgage still depends on a property passing the appraisal and inspection requirements, mortgage approval is essentially your lender’s commitment to lend you the money. 

Because you’ve already supplied the financial documentation, and it has already been reviewed and evaluated, the mortgage approval process is typically straightforward.

Once your home loan application goes through the underwriting process and you receive approval, you’ll close on your new mortgage. 

This is the final step toward homeownership and getting the keys to your new home.

Do I need a mortgage pre-approval?

Mortgage pre-approval shows real estate agents and buyers that your lender has checked your financial situation and confirms your ability to repay the mortgage loan. 

Your mortgage pre-approval letter will give you several estimates:

  • an estimate of how much money you can borrow, 
  • an estimate of the interest rate you can get, and 
  • an estimate of your monthly payment. 

With this information, you can begin to look at homes that meet your family’s needs without overspending. Knowing your mortgage price range can save you time and energy. 

For example, you may think you can only afford houses up to $100K, but after pre-approval may find out you qualify for $150K. That extra $50K might make all the difference between finding your dream home or not. 

A mortgage pre-approval letter also tells sellers you can afford to purchase their home. That’s important. Without a pre-approval letter, sellers can be nervous that your offer might fall through.

Can I spend less than I’m pre-approved for?

Yes. Just because you are approved for “up to” a certain amount doesn’t mean you have to spend that much. 

Depending on your needs, the current housing market, and your willingness or ability to do some minor repairs or upgrades, your home search might turn up the perfect property for less than your mortgage pre-approval amount. 

Spending less than you’re approved for can mean lower monthly mortgage payments and more cash flow in your household budget. 

Mortgage pre-qualification vs. mortgage pre-approval vs. mortgage approval—which one is right for me?

Each of these is an important step toward home ownership, and they work together to help homebuyers make sound financial decisions. 

They also help you avoid unnecessary stresses such as thinking you qualify for less than you can actually afford or a seller rejecting your offer because it didn’t include a pre-approval letter.

Getting pre-qualified is an ideal first step toward buying a home. It’s a quick, painless—and free—way to decide whether you’re ready financially to buy the home you want.

Get pre-approved with AAA Banking

Once you’re ready to move forward, pre-approval helps you estimate how much mortgage you can expect to qualify for—and you can begin looking at homes.

When you find the home you want, mortgage approval helps you seal the deal.

Reach out to the mortgage loan officers at AAA Banking today if you’re interested in finding how much you could pre-qualify for.

Photo by RODNAE Productions.

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