Whether you are shopping for a traditional single-family home or a condo, there are several differences between being pre-approved and pre-qualified for a mortgage loan. Unfortunately, people often confuse pre-approval and pre-qualified and assume they mean the same things, but they do not, and these are major differences between the two terms.
It is important you understand these differences and how they can affect your buying experience, so you can determine which one is the best to use to fit your particular needs. Once you have learned the differences, you are sure to avoid any confusion and guarantee your home buying experience is fun and exciting while remaining stress-free!
Pre-Qualifying for a Condo or Home
The first step to securing, and being approved for an actual mortgage is to get pre-qualified. It is not too difficult and only requires minimum documentation. At this stage, you provide your bank or other mortgage lender with a general overall picture of your current financial situation including your current housing costs, debts, assets, and income.
The lender will review this information and put together an amount to give you an idea of how much of a mortgage you could be approved for, along with how much money may be needed for a down payment. Oftentimes, this step can be completed either over the Internet or the phone and does not require an actual face-to-face meeting.
However, and this is where you need to take note: Pre-qualifying for a mortgage DOES NOT review your credit history. As you probably can guess, this means the initial amount you pre-qualify for and the type of mortgage program could easily change once you get ready to apply for actual financing. As such, being pre-qualified is not as significant for sellers compared to being pre-approved.
Pre-Approval for a Condo or Home
The second step to securing a mortgage is getting pre-approved. Even if you were already pre-qualified for a loan, you will still need to take this step. Pre-approval processes take a more in-depth look into your financial situation and DO review your credit history. You WILL complete an actual mortgage application to get pre-approved.
The main benefit of pre-approval is the lender will issue you a conditional approval letter that details an exact loan amount and anticipated down payment amount. Once you have found the home you want to buy, you supply the actual purchase price and other details to the lender and your pre-approved mortgage becomes a completed loan application.
In addition, once you have this amount, you can focus on condos and homes within your pre-approved price range. Furthermore, sellers place a greater value on pre-approved buyers since they are only a few steps away from closing on the home once an offer is made.
Keep in mind neither process takes into account certain costs, such as home appraisals, inspections, and closing costs, so you will need to make sure to budget accordingly. For assistance in finding the perfect condo or home, contact experienced Square One Mississauga realtor, Shawn Gandhi today at 905.795.1900!