Looking for a new home can be challenging, and you need all the help you can get. Getting pre-approved or pre-qualified can make all the difference in getting your offer accepted by a seller. But what is the difference between being pre-qualified or pre-approved, and which is best to have?
First, let’s see what the differences between pre-qualified and pre-approved are.
Having a prequalification letter from a lender means you’re conditionally approved to purchase a home up to a certain price, this is based on basic information about your income, debt and how much you have saved for a down payment.
To get a preapproval, you are providing details about your employment and financial information and allow the lender to pull your credit history and learn more about you as a borrower. A preapproval means the lender is stating confidence in lending you a certain amount of money to purchase a home, pending any issues with the house itself or unforeseen circumstances with your finances.
The differences may not seem like a lot but since the pre-approval requires showing documentation of finances and work status verses just reporting them, it packs a bigger punch when buying a house is involved.
With the pre-approval, the seller has proof of your lender’s confidence in you as a borrower. A pre-qualification gives you a good guideline to use by letting you know how much you can realistically afford in a home. But it’s the pre-approval that will really make the difference when it comes time to make an offer and negotiate.
So, it looks like the way to go is with a pre-approval. But there is one thing to consider. Try not to get pre-approved by too many banks because they will all be reviewing your financial background. As a result, those inquiries are noted in your credit report and can negatively impact your credit score if you have too many recent checks into your credit history.