Pre-Qualified or Pre-Approved? Know The Difference

Are you ready to buy your first home? Whether you’re a first-time buyer or have been looking for a new home in Des Moines and Central Iowa for quite some time, the process of finding and purchasing one can be tedious. You have to find the right lender and understand what criteria they’re going to use to judge you as a homeowner. But before you start applying for a loan, it’s important that you know what “pre-qualified” and “pre-approved” mean. 

Pre-qualification and pre-approval are two terms that you may have encountered during your mortgage research. These terms basically describe the situation where the bank or credit union has decided you’re a trustworthy person to lend money to. However, the exact usage differs depending on context, and the advantages of having a pre-qualified vs. pre-approved mortgage can differ too.

Pre-approval and pre-qualification can be used to demonstrate your ability to secure funding and willingness to buy a home

What is Pre-Qualification? 

Pre-qualification is one of the first steps you can take in your home buying journey. You’ll describe your income, assets, credit, and debt to your lender. They’ll use that information, and sometimes a credit check, to estimate how much you might be able to borrow.

When pre-qualifying for a mortgage loan, you’re essentially telling the lender what they need to know about you in order for them to consider giving you the mortgage loan that you want.

It’s important not to confuse pre-qualification with the mortgage application itself. Pre-qualification is just a snapshot of information about your financial situation at that time; it doesn’t necessarily reflect your current financial situation or future plans for paying off loans or repaying debts over time.

What is Pre-Approval?

Pre-approval takes this process to the next level. Your lender will closely examine your financial history and verify all your financial information. You may be asked to submit W-2s, pay stubs, bank statements, and other financial documents. Your lender will also pull your credit report to review your credit score and history. In most cases the bank or credit union may perform a hard credit check as part of determining your trustworthiness as a lender. This involves the bank or lending agency inquiring about your credit with one of the three large credit-reporting bureaus.

Pre-approval is ideal for those who want to know more about their options before choosing a loan product. It's also helpful for those who have had trouble getting approved for a loan and are unsure whether they are ready to take on this responsibility financially.

By performing these steps beforehand, you can save yourself from having to provide information that may not be accurate or up-to-date when applying for a loan application. Also, if there are any errors on your application that would negatively impact your approval, it will be easier for you to correct them before you submit the loan application itself.

Which should I choose?

To summarize, pre-qualification is a good first step in the home buying process, but pre-approval is better if you're looking to make a serious offer on a house. So essentially, getting pre-approved is more important than getting pre-qualified. But, if you ask a mortgage consultant, they'll probably say that the best thing to do is get both. You can always just apply for pre-approval after you've gotten your pre-qualification estimate.

What does all of this mean? If you're planning to purchase a home in the near future, start gathering your documentation and getting pre-approved as soon as possible. Or you can give us a call here at The dsmSOLD Team and let us guide you with these steps. We'd love to help you find the right option for you as we begin your journey to find your perfect home in Des Moines and Central Iowa! It will make the home buying process easier and get you into a better position to find a home that you truly love.

We're here for you! We're excited to show you our five star, red carpet experience an get you connected with the right people to make this process a breeze! Give us a call today!