The Challenge of Navigating Financial Terms
When you apply for a mortgage for the first time, the number of specialized terms and professional jargon you face seems overwhelming. As soon as you start talking with an agent, you will hear a lot about pay stubs, W-2 forms, locking in the rate, home equity, down payment, mortgage refinancing, non-QM loans, dry and wet funding, etc. Some of those terms you can figure out yourself more or less accurately, while the others require explanation to understand properly. Mortgage pre-approval and pre-qualification are among the latter. Let’s dig in to find out more about them.
Explaining Mortgage Pre-Qualification
At first glance, those pre-something words denote the same thing (and some lenders use them interchangeably, by the way). They describe the procedure that happens before you get down to borrowing money hammer and tongs. However, the two different names exist for a reason, right?
Pre-qualification is what you start your home-buying journey with. As the name suggests, its purpose is to show the lender that you qualify for getting a mortgage. In other words, the organization makes sure you are a suitable person to give money to, what types of loans fit you the best, and how large the loan can be. On the other hand, the future borrower can understand how real expectations are. Such conclusions are made on the basis of assets, income, credit, debt, and other financial information you submit yourself.
Very often, pre-qualification results from an informal conversation and it is completely free of charge for the applicant. During this conversation the borrower gives rough numbers from memory and the expert may run a quick credit check (the so-called soft pull) to get the general picture of their financial situation. After that, you may hear something like “Okay, it looks fine. Judging by what you say, you can get a regular 30-year loan at a 6% rate. If you agree to proceed, we will have to cross-reference your data and clarify details before we move forward.” Or you may read these words (though phrased more formally) in an official message on the company’s letterhead.
What is Mortgage Pre-Approval?
Pre-approval is a different story. When you go through it, it means that the agency has given the green light to the idea of lending you money but needs to verify your creditworthiness with the help of an out-and-out examination. It is a much longer process (typically taking 1 to 3 business days) that can't be completed without relevant documents and involves a hard credit check.
If the lender sees that you are a reliable person and have financial means to pay back the loan, it sends you a pre-approval letter. This letter isn't a guarantee or commitment. It is an official offer to lend you a certain sum at a certain interest rate that stays valid for quite a short time (as a rule, from 60 to 90 days, with possible variations of 30 or 120 days, depending on the lender’s policy). At most lending agencies, the procedure is free, but some may charge a credit report or application fee (up to $400) to cover credit inquiry and document processing expenses.
The pre-approval offer becomes a done deal only if the loan successfully goes through underwriting. The latter is triggered when you find the house of your dreams and sign a purchase contract. However, in case underwriting exposes some negative details or discrepancies in the information you submit, the loan terms may be altered, or your application may be denied.
Mortgage Pre-Qualification vs Pre-Approval: A Back-to-Back Comparison
To let you see the differences between the two procedures clearly, it makes sense to present them in one place.
| Aspects | Pre-qualification | Pre-approval |
| Necessity | Optional | Mandatory |
| Data source | Self-reported, unverified information | Official pay stubs, account statements, and bank returns |
| Mortgage contract parameters (amount, interest rate, etc.) | Ballpark estimation | Exact numbers |
| Credit check | Soft, doesn’t influence the credit score | Hard, can lower the credit score by a few points |
| Required time | Within minutes | Several days |
| Cost | Free | Depending on the lender, may be free or amount to several hundred dollars |
Now you see how mortgage pre-qualification and pre-approval differ. However, to avoid any misinterpretations, it is better to address vetted experts in the field.
How LBC Mortgage Can Help You
We have been in the mortgage market for 18 years, conducting pre-qualifications and pre-approvals for dozens of thousands of Americans. Our company operates in 11 states and nationwide to make the home-owning dream come true for people from all walks of life. As long-time specialists in all aspects of the mortgage industry, we provide qualified consultations to prospective applicants and customers at any stage of the loan processing routine, covering the nitty-gritty of pre-qualification and pre-approval procedures.
Contact LBC Mortgage for expert assistance and tailored recommendations to help you embark on the home-purchasing journey today.
To Sum It Up
Mortgage pre-qualification is a voluntary procedure initiated by the future borrower to understand what they can count on in terms of loan type, amount, interest rate, mortgage term, etc. It is performed within minutes and relies on the unverified information the person provides. Mortgage pre-approval is a necessary step in the mortgage issuing pipeline conducted by the lender. It involves an in-depth inspection of the prospective client's creditworthiness based on official documents and data sources and takes up to several days.
For more details on the peculiarities of each routine, consult competent professionals in the lending domain.