Real Estate Terms: Pre-qualification vs. Pre-approval

Our REALTORS® know getting a mortgage on the best terms is something all buyers think about. That's especially true of first-time buyers! When you're exploring the best Richmond homes for sale, sound financing means peace of mind.

Luckily, the mortgage process is a lot easier than it seems at first!

The more you know, the simpler it is to get a mortgage loan you can be happy with. We'd like to address one of the most common questions about home financing our team gets: The difference between pre-qualifying for a loan versus receiving pre-approval.

Pre-Qualification and Pre-Approval: What's the Difference?

When it comes to getting a great home loan, starting sooner makes life easier.

Prequalification and preapproval are steps you take to smooth the path to your final loan package. You can think of one of them as the trial run, while the other is the "real deal."

Pre-qualifying can happen in a matter of minutes the first time you talk to your lender. You discuss your finances and get a ballpark estimate for what loan amount you can expect. It's not necessary to document your income, and you're not committing.

Pre-qualification is often the first or second step someone takes before starting a house hunt since it indicates what homes and neighborhoods to focus on. It's a good idea to check with several different lenders and take an average of their estimates.

Pre-approval, on the other hand, represents a conditional commitment by your lender. During the pre-approval process, you submit detailed documentation of your income. The lender takes extra steps to verify your financial health, including a detailed credit check.

Once you "pass" pre-approval, your loan package is effectively ready. You can bid on a home at or below your conditional loan approval amount. However, you need to act quickly. Specific loan amounts and rates are usually only locked in for 30-90 days.

A loan commitment is a final step. It's issued only when the lender approves both the funding amount and the property. This takes longer because lenders want to make sure the home is insurable, usually by awaiting the results of a home inspection.

Why Do Both Pre-Qualification and Pre-Approval?

Technically, you can skip pre-qualification if you wish. It is not a requirement, but it will give you some beneficial advantages as you move through the buying process.

First and foremost, you'll never have to guess how much funding you may qualify for. That saves you time and effort you might otherwise waste on properties that won't fit your budget.

Plus, you have the chance to see whether a given lender seems right for you. How a lender responds to your questions and discusses your needs can provide you with plenty of insight.

Pre-approval is valuable, too. Although it's not the same as a loan commitment, it gives you a negotiating edge when working with sellers. They'll know you are ready to move forward right away. Only cash bidders can offer sellers a faster process.

Whether you're pre-approved, pre-qualified, or just getting started, Napier ERA is here for you.

Our experienced team members are experts in the Richmond area. We'll work with you to find properties fitting your needs and your budget. Contact us to find out more.