Buying your dream home brings a lot of excitement. But you would surely be looking for a good residential mortgage option to make your move. You have heard somewhere about pre-qualification or pre-approval for a residential mortgage. What do they mean? Is it necessary to go through both procedures? All such questions must be going through your mind. These terms are new to real estate buyers who are buying property for the first time. This article will highlight the difference between pre-approval and pre-qualification for residential mortgages:
Pre-Qualification
Pre-qualification is the process in which the applicant provides basic information about his financial situation for a basic review of his eligibility for a residential mortgage. The applicant has to submit a proper pre-qualification application for this financial review. There is no hard-and-fast rule regarding the requirements of financial information pre-qualification.
The applicant may have to provide a creditor with financial information such as annual income, savings, and various other trivial financial details. Pre-qualification also involves a soft credit inquiry in which a creditor checks your credit report. This gives applicants a good opportunity to assess how they are managing their finances without affecting their credit score at all.
If an applicant passes the pre-qualification process and also gets a good result from his soft credit inquiry, then they can apply for a complete review of their loan application. A complete review requires applicants to go through a hard credit inquiry and submit their financial documents as well.
Does Pre-Qualification Guarantee Approval?
Make no mistake; pre-qualification cannot be regarded as a complete approval at all. It is a smart decision to have a soft inquiry during pre-qualification to ensure that you get a considerable review of your credit report. Applicants getting rejected during soft inquiry can save their time by not applying for a hard credit inquiry and affecting their credit score as a result of a thorough review.
Pre-Approval
Residential mortgage pre-approval is the next step after pre-qualification. This process involves an in-depth check of an applicant’s financial details covering his income, debts, savings, and credit history. If there is anything regarding your financial situation that is necessary to check your eligibility for a mortgage, then that detail will surely be checked in this process. All the ins and outs of your rental history and credit history are checked in this process.
Personal tax returns from the last two years, pay stubs from the last 30 days, bank statements from the last two months of all your account, and a wide range of other documents are required to be submitted to get pre-approved.
Does Pre-Approval Guarantee Residential Mortgage?
You might believe that getting pre-approved for a residential mortgage ensures your eligibility. This is not correct. You can be rejected for a mortgage even if you have been pre-qualified as well as pre-approved. Mortgage underwriting is the last process that finalizes your eligibility status to obtain a residential mortgage.
The Bottom Line
It can be stressful and upsetting for first-time homebuyers to spend time finding their dream home and then being unable to obtain a residential mortgage in the end. This is where pre-qualification and pre-approval procedures can save your time and provide you with specific details about mortgage limits before getting involved in the mortgage process.