November 2

What Are the Differences in Mortgage Pre-Qualification and Pre-Approval?

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Are you looking to buy Charlotte, NC real estate? Then you might have heard about mortgage pre-qualification or pre-approval. While both of these may seem the same, they do have stark differences.

Pre-qualification is the first step to getting a home mortgage. In this process, the lender will evaluate your financial data to give you a loan estimate. Meanwhile, pre-approval is the next official step to getting a mortgage. Here, you will need to provide documents such as payslips and tax slips. The lender will then conduct rigorous checks before deciding to give you a loan amount. 

Let’s explore these differences - and why you need to get either one of them before you buy your Charlotte, NC home. 

Mortgage Pre-qualification

What is the Difference Between Pre-Approved and Pre-Qualified?

Pre-approval can require you to share more financial and personal information with your creditor, while pre-qualification only requires less rigorous assessments.

To understand their difference, you need to understand their definitions first.

Mortgage Pre-qualification

What is Meant by Pre-Qualification? 

Pre-qualification is the first step you need to take to get a mortgage for a Charlotte, NC home. 

Pre-qualification is best for buyers who are still looking around. Because you have a rough idea of what your loan will be, your Showcase Realty agent can help you find houses in your price range.

How Does Pre-Qualification Work?

In this process, you need to give the lender an ‘idea’ of your financial capacity. 

You may do so by providing the following information:

  • Desired mortgage amount

  • Amount of money you will use for the down payment

  • Basic details of your bank account/s

  • Data about your income, assets, and debts

  • Soft credit check report

The lender will review these details to determine the amount you may be able to borrow from them. They will also discuss loan options, especially the one that suits your situation.

Mortgage Pre-Approval

What are the Benefits of a Pre-Qualification Procedure?

Pre-qualification is a quick and easy process. You may do this online or over the phone. More importantly, it’s often free of charge!

How Long Does Pre-Qualification Take?

You can apply for pre-qualification right now and receive a decision on the same day. In some cases, however, you may have to wait for your pre-qualification letter for about three days.

Can You Make an Offer on a House With a Pre-Qualification Letter?

You can make an offer on a house with a pre-qualification letter. With this letter, you can place an offer on your dream Charlotte, NC home for sale. 

However, you should note that pre-qualification does not guarantee a loan. You will need to be pre-approved and then, of course, approved to close the deal. 

Does Pre-Qualified Mean Approved?

Pre-qualification doesn’t mean a guaranteed mortgage. It only means that the lender may give you a loan in the future.

Charlotte, NC Real Estate

What is a Pre-Approval?

Pre-approval is the next step you need to take after pre-qualifying for a loan. Here, you need to show that you're qualified to get a loan. 

When you become pre-approved, it means you are credible enough to take a mortgage.

How Does the Pre-Approval Process Work? 

Compared to pre-qualification, you will need to provide more data to get pre-approved. That means filling out an official mortgage form. 

You also need to provide the lender with all the documents required, such as:

  • Desired mortgage amount

  • The amount of money you'll use for the down payment

  • Income information, i.e., pay stubs for the last 30 days

  • W-2 statements

  • Personal and/or business returns from the last two years

  • Full credit check report

  • Data on current mortgages, if any

  • Information on divorce, foreclosure, or bankruptcy, if applicable

The lender will conduct rigorous financial checks to see if you're qualified. If you are, the lender will present you with a pre-approved mortgage amount.

You will then receive a document known as the pre-approval letter. This is only valid for 90 days, so pre-approval is best for clients who are sure about buying a Charlotte, NC home.

Unlike pre-qualification, though, the pre-approval process is not free. You can expect to pay several hundred dollars for this process.

Charlotte, NC Real Estate Expert

What are the Benefits of Pre-Approval? 

Pre-approval will show you the interest rates - which you have the option to lock in. When you’re pre-qualified, the only thing you’re entitled to is a loan amount estimate. 

While you can make an offer if you’re pre-qualified, sellers prefer those who are pre-approved. Since you’re so close to getting a mortgage, they are more likely to accept your offer. 

How Long Does Mortgage Pre-Approval Take?

Unlike pre-qualification that only takes a few days, pre-approval can take a week. 

Can You Get Denied After Pre-Approval?

There’s a chance that you may get denied even if you’re pre-approved. That’s because the lender will run checks once again before they lend you money. 

If you incur debt or suffer from loss of income along the way, your loan may be denied. 

Likewise, the lender will need an appraiser to check the home before closing the loan.  


Is it Better to be Pre-Approved or Pre-Qualified?

If you’re serious about buying a Charlotte, NC home then you should get pre-approved. 

Here are two reasons why it’s better: 

1. The Pre-Approval Process is More Reliable

For one, a pre-qualified letter is not as ‘reliable’ as a pre-approval letter. The former relies on self-reported data, meaning some people may skew the details in their favor. They may withhold information about their debt, or exaggerate their income out of proportion. They don’t have to provide formal documents to be pre-qualified, after all. 

Pre-approval is a more rigorous process, and is considered to be more trustworthy by sellers. Lenders will check the applicant’s records thoroughly before they pre-approve them.

2. Sellers Take Pre-Approved Clients More Seriously

If you're only pre-qualified, then the seller might not take your offer seriously. That's because of a clause known as financial contingency. If a buyer can't secure a mortgage, they can cancel the contract without penalties.

Since the offer has fallen through, the seller has no choice but to start from scratch. They will have to ask their Showcase Realty agent to list the property and begin fielding offers again. 

This is why home sellers prefer pre-approved buyers who are only a step away from getting a mortgage and successfully closing the home purchase.


Final Thoughts

Pre-qualification is the first step you need to take to get a Charlotte, NC home mortgage. It involves providing self-reported data to lenders. They’ll evaluate this to give you an estimate of the amount you could borrow. 

Pre-approval, in contrast, is the second and more rigorous step for prospective home buyers. Here, you need to provide official documents, such as tax returns, credit reports, etc.

The lender will then perform a credit check to give you a loan estimate - and the interest rates that come with it.

If you're preparing to buy a Charlotte, NC home, then you should get pre-approved. Nancy Braun and her team of real estate experts at Showcase Realty can assist you with finding this process and get you on the right path to buying your home. Call us at 704-997-3794 today.


Tags

Charlotte Real Estate, Homes For Sale In Charlotte NC, mortgage


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