Most first time homebuyers will need to apply for a mortgage, basically a loan to finance the purchase of a home. Typically, the bigger the down payment a buyer is able to make, the better opportunities he or she will have when it comes to interest rates and the monthly payments. Most people will suggest that a buyer becomes pre-qualified or pre-approved for a mortgage, but what’s the difference between these two?
When applying for a mortgage, it’s perhaps best to start with a pre-qualification. Essentially it will allow you to have a better idea of just how much you can afford to spend on a home. Upon receiving pre-qualification from a bank, it will detail how much you can borrow, information that will depend on whatever asset or income you provided. Remember that these are ballpark figures since at this stage, you have yet to provide necessary information like bank statements and you likely haven’t had your credit pulled either.
When you are pre-approved for a mortgage, you’ll be asked to submit the name of your employer, your social security number, and other financial information like tax returns, and bank statements. Whatever bank you’re working with will then provide this information to an underwriter, determining how much of a loan you are capable of affording. With a mortgage pre-approval, you will have a significant advantage when buying a home, as it tells a seller you’re a worthy candidate and a bank is willing to provide you a loan.