What does it mean to get pre-approved vs. get pre-qualified for a mortgage, and what’s the difference between the two? Let’s take a look.
When searching for a mortgage, you may hear the terms pre-qualification and pre-approval used interchangeably. However, they are two optional steps you can take to initiate the loan approval process. A mortgage pre-approval usually takes longer to complete and usually requires you to submit more documentation, such as W-2s, to verify your financial information. In contrast, a mortgage pre-qualification is usually much shorter and only requires you to honestly report your own financial information.
Being pre-qualified or pre-approved before you begin your home search can make it easier for you to find a house you love that fits within your budget, but neither of these steps will ensure you a loan. Given that you will have already provided the lender with a great deal of the required information, a pre-approval may also make the process of completing a complete loan application much simpler and faster.
Pre-approval and pre-qualification from a lender both assist in determining your price range, but a pre-approval letter can let sellers and your real estate agent know that you’re serious about purchasing a property. Pre-approval letters are frequently required by agents since they provide compelling evidence that you are a qualified buyer with the ability to submit a competitive offer.
Navigating the Homebuying Journey: Understanding Prequalification and Preapproval
Acquiring a home is an important life milestone, and knowing the different processes is essential to a successful and seamless transaction. Prequalification and preapproval are two crucial steps in the home-buying process that frequently cause uncertainty and queries in the minds of potential buyers. This thorough guide will explore the distinctions between prequalification and preapproval, with a focus on how getting prequalified on Zillow affects your credit score.
Prequalification: A Quick Snapshot of Affordability
Prequalification is a preliminary assessment of your borrowing capacity based on self-reported financial information It typically involves a brief conversation with a lender or online form where you provide details about your income, assets, debts, and credit history Based on this information, the lender estimates the loan amount you may qualify for.
Benefits of Prequalification:
- Quick and easy: Prequalification is a fast and straightforward process, often completed within minutes.
- No impact on credit score: Prequalification typically involves a soft credit inquiry, which does not affect your credit score.
- Provides a general idea of affordability: Prequalification gives you a rough estimate of how much you can borrow, helping you narrow down your home search.
Limitations of Prequalification:
- Not a guarantee of approval: Prequalification is based on self-reported information and does not involve a thorough verification process. Therefore, it is not a guarantee of loan approval.
- Limited accuracy: Prequalification provides a general estimate of affordability but may not be completely accurate due to the lack of verification.
- No preapproval letter: Prequalification does not result in a preapproval letter, which is often required by sellers and real estate agents.
Preapproval: A More In-Depth Assessment
Preapproval is a more comprehensive assessment of your loan eligibility, involving a thorough review of your financial documents. To get preapproved, you will need to provide the lender with documentation such as bank statements, W-2s, pay stubs, and tax returns. The lender will verify your income, assets, debts, and credit history, and issue a preapproval letter outlining the loan amount you are preapproved for.
Benefits of Preapproval:
- Demonstrates seriousness to sellers: A preapproval letter signals to sellers that you are a serious buyer with the financial capacity to purchase their property.
- Strengthens your offer: Having a preapproval letter can make your offer more attractive to sellers, increasing your chances of having your offer accepted.
- Provides a clear understanding of affordability: Preapproval gives you a precise understanding of how much you can borrow, allowing you to focus your home search within your budget.
- Streamlines the loan process: Preapproval can expedite the loan process, as much of the documentation has already been verified.
Limitations of Preapproval:
- Requires more time and effort: Preapproval involves gathering and submitting documentation, which can be time-consuming.
- May impact credit score: Preapproval typically involves a hard credit inquiry, which can slightly lower your credit score.
- Not a guarantee of final approval: Preapproval is conditional and does not guarantee final loan approval.
Getting Prequalified on Zillow: Impact on Credit Score
Zillow offers a prequalification tool that allows you to estimate your borrowing capacity based on self-reported information. This prequalification process does not involve a hard credit inquiry and therefore does not impact your credit score.
Getting prequalified on Zillow does not hurt your credit score, as it only involves a soft credit inquiry. However, it is important to remember that prequalification is not a guarantee of loan approval and provides a general estimate of affordability. For a more accurate assessment of your loan eligibility and to demonstrate seriousness to sellers, consider getting preapproved by a lender.
Additional Considerations:
- Shop around for lenders: Compare interest rates, fees, and terms from different lenders to find the best mortgage options for your needs.
- Get preapproved before house hunting: Having a preapproval letter in hand will streamline the home search process and make your offers more competitive.
- Work with a reputable real estate agent: An experienced real estate agent can guide you through the homebuying process and advocate for your interests.
It’s critical to comprehend the distinctions between prequalification and preapproval in order to make wise decisions throughout the home-buying process. Zillow’s prequalification tool is useful for determining affordability and starting the loan process early, even though it has no effect on your credit score. To show seriousness to sellers and receive a more thorough evaluation of your loan eligibility, think about being preapproved by a lender.
Which is better pre-approval or pre-qualification?
Since a pre-approval is a conditional commitment from a lender to approve your loan, it usually has more weight than a pre-qualification. Your moving timeline can be a useful indicator of whether you should select a pre-approval or pre-qualification if you’re not sure which is the best option for you. If you’re serious about purchasing a home, you might want to start the pre-approval process first. Mortgage pre-qualification will give you useful information you can use to find a home within your budget if you’re unsure about your eligibility for a loan and how much you might be able to borrow.
What does pre-qualified mean?
Pre-qualification is the process of determining whether you meet the minimum requirements set out by a lender for a mortgage by using your self-reported income, assets, credit score, and debt. Pre-qualification can be as simple as a short phone conversation with a lender. After that, you might or might not receive a letter from the lender outlining the kinds of loans you might be eligible for and the maximum amount you could borrow.
Pre-qualification is just a starting point. As per the findings of a Zillow survey, approximately 25% of prospective buyers who have not yet commenced working with an agent have reported being pre-qualified.
To find out more about your loan eligibility and to decide where to start your home buying journey, start the pre-qualification process. You won’t even know what kind of homes you can afford.
Keep in mind, a mortgage pre-qualification is only as accurate as the information you provide the lender. Because of this, people who are prepared to purchase in the near future frequently start the pre-approval process right away, which entails more thorough verification.
Pre-Qualification vs Pre-Approval on a Mortgage. What’s the Difference?
FAQ
Does Zillow prequalification affect credit score?
Does getting prequalified for a house hurt your credit?
Does it hurt your credit to see if you prequalify?
What does pre qualified mean on Zillow?
Does mortgage prequalification affect my credit score?
As long as the mortgage prequalification only asks you to share an estimated credit score, or the lender checks your credit with a soft pull, your credit scores won’t be affected. However, because lenders generally don’t verify your information for mortgage prequalification, it may only provide you with a rough estimate.
How do I pre-qualify for a mortgage on Zillow?
Speak with a lender on Zillow to begin the mortgage pre-qualification process. Any information you provide Zillow Group Marketplace, Inc. (ZGMI) is kept safe and secure, using the same encryption and security that major banking institutions use.
How does mortgage preapproval affect your credit score?
During the mortgage preapproval process, lenders do a hard credit check and verify information such as your assets, income, employment and other debts. Mortgage preapproval decreases your credit score, but the drop will be short-lived. What is mortgage preapproval?
What is a mortgage pre-qualification?
A mortgage pre-qualification is the process where a lender reviews your self-reported income, debts and credit to determine an approximate loan amount you may be able to borrow. To pre-qualify for a mortgage means you meet a lender’s general guidelines based on the information you provide.