Pre-qualification is an estimate of how much money you can afford in a mortgage payment and how much money a lender would be willing to loan you. You provide the lender with basic personal financial information – income, assets, debts, and a potential down payment amount. The lender will run the data through a formula and will then provide an estimate of the amount of money you can qualify to borrow for a mortgage. The best time to get a pre-qualification is at the beginning of your home buying process, before you begin looking at properties. There is no cost involved and there is no commitment on either side. This is just a helpful estimate in helping you determine if buying a home is a viable option, and if so, what your price range would probably be.
Pre-approval is a more formal process and is a firmer commitment on behalf of the mortgage company. It involves a credit check, employment verification, and actual documentation will be required regarding your income, assets, and debts. An application fee may be required for running the credit check and verifying employment and financial information. Once approved the lender will issue you a letter stating the amount the bank would be willing to loan, and at what interest rate, for a home purchase. Lenders will usually lock in the interest rate for 30, 45, or 60 days.
However, neither a pre-approval nor a pre-qualification means you are guaranteed a mortgage. The lender will need to look at the property appraisal, verify information, perform a title search and in many cases, re-check credit before agreeing to make a loan.
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