Pre-Qualified vs. Pre-Approved vs. Approved
Getting pre-qualified involves supplying a bank or lender with information regarding your financial situation, including your debt, income, and assets. The lender will review everything and give an estimate as to how much you should be expected to borrow. Pre-qualification can be done over the phone or online, usually not requiring a payment. It is done quickly as it typically takes 1-3 days to get a pre-qualification letter. No attempt is made to verify the validity of the borrower's information through this step as loan pre-qualification is solely based on the data you are to provide to the lender, needing to be done accurately. The amount that is given to you during pre-qualification is not guaranteed due to only being based on the information you have given.
This initial pre-qualification step allows you to discuss goals and needs you may have regarding your mortgage. Several mortgage options will be provided so you are aware of what is best suited for you and your situation. Pre-qualifying is helpful when it is time to make an offer.
Getting pre-approved would be the next step in the process as pre-qualification is a representation of credit worthiness while pre-approval is more definitive. To be pre-approved, an official mortgage application needs to be completed with all of the necessary documents for a thorough check on your financial background and credit rates. This involves a review of your credit report, income documents, asset documentation, and confirming the amount of monthly debt associated with other items. After this information is approved, the lender is able to pre-approve you for a mortgage with an amount limit. This step gives you an opportunity to better estimate the interest rate you will be charged on the loan as your credit score takes a part.
Some lenders will charge an application fee for the pre-approval process. You will be given an exact loan amount, allowing you to search for a home that is at or below that amount. This brings you a step closer to getting a mortgage as being pre-approved by the lender typically allows the final approval process to move faster as financial documents have already been submitted and examined.
Getting approved will occur once you have chosen your dream home and submitted it to the bank for consideration. Approval is made based on an appraisal of the property and an inspection. If the lender is satisfied with both of these factors, a loan will be finalized for that property.