The first day of school, the first holiday without parents and even the first kiss are milestones you will probably remember for a lifetime. However, being given the keys to the first house you own rather than rent will undoubtedly be the most significant one.
Before you can buy your first home, you must find a suitable house and be able to secure the right mortgage. The type of mortgage you opt for will depend on your down payment, your credit history, and the disposable income you have for your monthly payments. However, whether you choose a fixed-rate mortgage or take a leap of faith with a variable rate, first you will need to find a lender and be approved for a loan.
Understanding the difference between pre approval vs. pre qualified mortgages is essential, and you should carefully consider both, before going house hunting with either.
What Does It Mean to Be Pre-Qualified?
The most important aspect of being pre-qualified for anything is that it does not guarantee that you will receive the end product. The easiest way to understand this is in terms of applying for employment – with your skills, experience, and achievements, you can be qualified for a job; however, that doesn’t guarantee you’ll be chosen for the position, if you apply.
Pre qualified mortgages works in a similar way. Your chosen lender will work through a range of information with you to assess your financial situation, based on estimates of your income and expenditure you provided. You may also be asked about your assets and any outstanding debts that you have at that time. These details will be used to provide an estimate of how much you can afford to borrow.
Having this information allows you to begin looking at houses within your given price range. It also gives you an indication of what changes you may need to make to your lifestyle or employment if you want to be considered for a larger mortgage. However, you could still be refused the pre-qualified amount if there are problems with your credit rating or there is a gap between your estimates and the actual income/expenditure amounts once they are verified.
What Does It Mean to Be Pre-Approved?
You could compare the pre-approval process to jumping into a rushing river without a buoyancy aid – to get pre-approved for a mortgage, you will need to supply all the details that are required, and undergo a full credit check.
The main benefit of getting pre-approved is that you will know exactly how much you can borrow. Not only will you be able to set a price range on offers for your perfect house, but the mortgage rate your loan is subject to will also be guaranteed for up to 120 days, giving you enough time, to actually find your perfect home.
However, the lender can still put conditions on the final approval of the mortgage. These conditions can be attached to the property, such as proof of the property’s appraisal, or can be attached to you and can include proof of your down payment fund.
Which One Is Right For You?
Whether you chose to apply for a pre approval vs. pre qualified mortgage will depend on a number of points. If you are in the early stages of house hunting or need to check your credit history then becoming pre-qualified will give you the information you need to start your journey.