If you are looking for a property, you must have heard that you need to get a pre-qualification or pre-approval for a mortgage. These are the important steps in your mortgage application process.
Most people are confused regarding the pre-qualification and pre-approval steps in a home buyer’s journey. There are a few similarities between those two, but also a huge difference.
A pre-qualification is an initial evaluation of a home buyer’s ability to qualify for a mortgage.
The lenders will take a quick review of your financial history, including your credit score, assets, debts, and income. They will provide an estimated maximum amount on how much you can borrow and what kind of terms are based on your financial history.
It is a good step for the first-time homebuyer who is just testing the water and isn’t ready to jump in. Getting pre-qualified introduce you to various mortgage option. However, the pre-qualification process isn’t a sure thing because the lender will not take a strong review of your financial situation. It will only be based on the information provided.
A pre-approval process tells the lender that you are highly committed to getting a mortgage.
Receiving a pre-approved means that the lenders have gone through your financial situation, such as a strong review of your credit history, income, assets, and debts. They will go through every single detail of your financial circumstances.
A pre-approval is way better than pre-qualification because it will give you a more accurate interest rate and terms that are certain of your financial status.
When you are pre-approved, you will get a pre-approval letter, basically an offer (which is not a promise) to lend you a specific amount of money. The letter is valid from 60 to 90 days and may vary depending on different lenders.
Difference between pre-qualification and pre-approval
- Pre-qualifications give you an estimated amount on how much you can borrow, while a pre-approval tells how much you can really borrow.
- Pre-qualification does not require complete documentation, a pre-approval does.
- Pre-approval requires you to take a look at your credit history while pre-qualification credit won’t be affected by a hard inquiry.
Which is better?
Well, it will depend on your financial circumstances.
If you are a first-time homebuyer, you will find pre-qualification very helpful for you. It’s especially great for those who are just starting their home buying budget and want to get an idea of how much they can borrow.
While choosing a pre-approval, this option is for people that are highly committed to getting a mortgage. People who will allow their accounts to be pulled out and confidently reviewed by the lender. Sellers are more likely to consider these people because they have had creditworthiness verified.
How to get a mortgage with bad credit
Many people have gone through this problem with their credit score. When the pandemic hits us people are started to lose their jobs and others had to shut down their businesses.
Can I still be able to get a pre-qualification or pre-approval with a bad credit history? Well, it won’t be hard for you to get pre-qualifications since the lender will not take a deep review of your credit history.
On the other hand, it might give you a hard time getting a pre-approval. The lender wants to make sure that you can make a repayment for your mortgage, chances are you will be denied if you don’t prove your creditworthiness.
The good news is there are places to get a mortgage with bad credit. Some private lenders help people to get a mortgage with poor credit but expect an extra charge for their service.
If you consider talking to a mortgage broker to help with your credit history and apply for a pre-qualification or pre-approval, you may send us your details and inquiries. We will help you with whatever your needs are.
Know how much you can afford before you start looking for your dream home and understand the requirement that will help you during the entire process.
A good credit score will help an individual’s financial circumstances in many aspects, not just for getting a pre-qualification and pre-approval.