The process of buying a home can seem difficult, whether it is your first time or your tenth. However, first time buyers in particular may struggle to understand exactly how much house they can afford and what their first mortgage may look like. In order to better comprehend their buying ability and make wise long-term financial decisions, home buyers can consider pre-qualification and pre-approval during the course of purchasing a home.

These two avenues may sound similar, but they serve different functions, both of which can be important in the process of seeking and finalizing a home purchase. In order to determine whether you should apply for a pre-qualification or pre-approval, you must first understand what roles each of these types of documentation play.

What Is A Mortgage Pre-Qualification?

A pre-qualification for a home is one of the earliest steps that you can take to understand more about your buying power and make appropriate plans. A pre-qualification can typically be completed online, and you may receive your results in a matter of hours. The pre-qualification provider will ask you basic questions about your finances, income and credit, and they may even perform a credit check in order to give you more accurate information.

When you receive your pre-qualification, it will include information about how much you might be able to borrow; remember, however, that this is only an estimate. Pre-qualification can be useful in helping you plan how much you would like to save for a down payment and how much you can afford to spend on a home.

It is important to keep in mind that the amount you are pre-qualified for may be larger than what can actually comfortably fit within your budget, so use your pre-qualification to consider your finances and how a home purchase will make a difference.

What Is A Mortgage Pre-Approval?

A pre-approval typically occurs later than a pre-qualification, after you have already begun searching for homes and have an idea of what you would like to pay. A pre-approval is the closest you can get to an offer from your bank for a mortgage; they are generally valid for 90 days and serve as the bank’s notification that it is offering you a certain amount and terms for a mortgage. However, a pre-approval is not a promise, and a bank is not obligated to craft a home loan identical to your pre-approval.

Pre-approvals take more time to complete, and you will need to provide more thorough information, such as recent pay stubs. However, a pre-approval is a powerful way to show sellers that you are serious about a home purchase, which can improve your odds during the bidding process and secure for you the home of your dreams.

Which Option Should I Seek?

Both pre-qualification and pre-approval are useful tools during the home buying process, but those who are already purchasing their second, third or later home may not need a pre-qualification or find it as useful as first time buyers.

Most individuals or families seeking a new home or first time purchase should consider a pre-approval, since it adds weight to your offers and increases your odds of success. However, anyone can apply for a pre-qualification in order to better understand how their finances might be impacted by a mortgage and what sort of numbers they could be looking at for a new home.

If you have sought a pre-approval during your active home buying phase, remember that a pre-approval is not a commitment from the bank to lend you a certain amount at a certain rate. You can improve your odds of a pre-approval converting into a similar mortgage by keeping your finances the same.

If you dramatically change your circumstances between the pre-approval and actual mortgage application—such as by putting a down payment for expensive furniture on your credit card and increasing your debt-to-income ratio—the bank may need to reevaluate your situation, which could impact your loan.

Try to hold off on changes to your income, employment, debt and other large factors until after closing on your new residence in order to see the most consistent results.

Work With The Professional Mortgage Experts At FMI Today

Whether you are seeking a home loan for your first home purchase or you are simply in need of guidance during the process, be sure to keep an expert on your side to help you navigate the home buying journey smoothly. Fairfax Mortgage Investments would be happy to help you qualify for the best loan terms and locate a mortgage that is right for you. Reach out to schedule an appointment with an expert.