Pre-qualified versus pre-approved. Before we answer that question let us first define what a pre-approval and what is a pre-qualification is. You must have heard of the term “pre-approval.” You also might have heard the term pre-qualification. Some people might think that it is the same, but it is actually not.
What is a pre-qualified?
A pre-qualification is a basic review of a person’s creditworthiness. What this means is it gives an estimate of what a buyer can afford.
Most buyers are hesitant to get prequalified before finding a home because they are afraid that their application for prequalification would impact their credit scores. Since a prequalification would only involve a soft check, this would not have an impact on their credit scores.
If applying for pre-qualification does not impact your credit score, does that mean pre-approval would? Well, it depends. For credit cards, applying for pre-qualification or pre-approval does not affect your credit score. The process only involves a soft inquiry.
For Auto loans and mortgages, it is a different story. Applying for either one would involve a hard inquiry and might damage your credit score. The good thing about it is that it would only last for a few months. If you are checking for the rates of different providers for auto or home loans within a period of 14 days, this would only be treated as one hard inquiry.
So why should you get pre-qualified or pre-approved?
Getting pre-qualified would determine which listings would fit your budget. It would be difficult to fall in love with a house just to realize that you can afford to buy it.
Pre-approval is almost the same. It is just that it is more detailed. It would show how much a lender is willing to lend, the interest rate, and the monthly payment a buyer is required to pay. However getting pre-approved would be beneficial if there is a bidding war. Most sellers would prefer buyers who have been approved compared to those without one.
Conclusion
Getting pre-approved is a little more involved but ends with an official-looking letter in hand telling you exactly how much you can afford and what your monthly payments will be.
Since a pre-approval letter is only valid for 30-90 days, depending on the lender, you want to wait until you’re sure you’re ready to buy.
