The mortgage industry is full of confusing jargon. If you hear the terms like “pre-approval”, “pre-qualified”, “underwriting”, or “escrow” and get overwhelmed, you’re not alone. Many homebuyers get confused and frustrated when it comes to knowing the ins and outs of the mortgage loan they’re applying for; so we thought we would help simplify the process. Here’s what it means if you get either pre-approved or pre-qualified for a loan, and the difference between the two.
While different lenders may interpret industry terms differently, at Sun West, we evaluate the home buyers’ credit score and credit report to determine if they qualify for a loan. By analyzing your score, we use the report to discover which home loans you and your partner qualify for.
What do lenders look for in reports? Things like student debt, outstanding car loans, and credit card bills are considered when determining if a borrower can be prequalified. By verbally verifying your family’s household income and assets and comparing them with any outstanding debts, the lender will then calculate the maximum monthly payment you can afford, as well as the total maximum price for your potential new house.
Preapproval for a mortgage differs slightly from prequalification. To be preapproved, the lender takes several extra steps in order to prove your eligibility for a loan. If you and your partner are hoping to be recognized as preapproved rather than prequalified, you will want to collect your individual W-2 forms, pay stubs, bank statements, and tax returns to show to your lender.
The Main Difference
So what are the differences between these two statuses? Getting pre-qualified allows you to get an idea of how much you’ll be approved for, while getting pre-approved does exactly what it sounds like: it proves your chances of getting verified approval for a mortgage loan.
Getting pre-approved offers a greater likelihood that your mortgage loan application will be approved, but it does require more work on your end as the borrower. Make sure to talk to your lender about everything that is expected from you throughout the process, from which documents are needed to when they are expected by.
At Sun West, we aim to help home buyers understand the ins and outs of the mortgage industry with as little confusion as possible. The more you know heading into a mortgage application, the better you’ll feel while your documents are being reviewed by. To apply for a pre-qualification or pre-approval, click here. To speak with one of our dedicated team members, contact us and we’ll be happy to talk with you and your family about your home purchasing options.