The Difference Between Mortgage Pre-Qualification and Pre-Approval: Which One Do You Need?
When it comes to securing a mortgage, understanding the difference between pre-qualification and pre-approval is crucial. While they may sound similar, these terms have distinct meanings and implications. Let's delve into the details to help you make an informed decision.
Pre-Qualification: An Initial Assessment
A mortgage pre-qualification is an initial assessment conducted by a lender based on the borrower's self-reported financial information. It provides a rough estimate of how much you might be eligible to borrow. This evaluation relies primarily on the borrower's word regarding income, assets, and debts. While it can be a useful starting point to gauge your borrowing potential, a pre-qualification does not carry the same weight as a pre-approval.
Pre-Approval: A Comprehensive Evaluation
A mortgage pre-approval goes beyond the surface-level assessment of a pre-qualification. It involves a thorough investigation by a lender into your financial situation, including assets, debts, and credit history. The lender scrutinizes the information you provide and verifies it through various means. As a result, a pre-approval is a more reliable indication of your ability to secure a loan.
Importance of Mortgage Pre-Approval in Competitive Markets
If you're planning to purchase a home in highly competitive real estate markets like Los Angeles or Orange County, a mortgage pre-approval is crucial. With multiple buyers vying for the same property, including a pre-approval letter from a lender in your offer to the seller can give you a significant advantage. Sellers view pre-approvals as a stronger commitment since lenders have conducted thorough due diligence on your financial qualifications.
I AM Funding: Your Pre-Approval Partner
At I’m Funding, we understand that real estate transactions don't adhere to a Monday-to-Friday schedule. We are committed to providing you with the support you need, even outside regular business hours. Whether you decide to make an offer on a Saturday afternoon or any other time, our dedicated team is available to execute a pre-approval promptly. Our goal is to help you secure your dream home.
Documents Required for a Mortgage Pre-Approval
To initiate the pre-approval process, there are a few essential forms and documents you'll need to prepare:
Loan Application: Complete our loan application form to kickstart the pre-approval process.
Credit Authorization: Grant us permission to obtain your credit history from a credit reporting bureau by signing an authorization agreement.
Required Documents: Gather the following documents to support your pre-approval application:
Identification: Provide a government-issued ID for each borrower, such as a driver's license, birth certificate, or passport.
Proof of Income: For employees, provide the most recent pay stubs. If you're self-employed, include a profit and loss statement. Additionally, provide financial asset statements for passive income sources.
Financial Asset Statements: Submit at least two months of your most recent statements for bank accounts, brokerage accounts, retirement funds (such as 401K, pensions, self-funded accounts), and trusts.
Tax Returns: Include W-2 forms and tax returns for the last two years if you're an employee. For self-employed individuals, provide profit and loss statements, 1099 forms, and tax returns for the last two years. If you have passive income, submit tax returns for the past two years.
Curious about what you can afford? Use our Loan Calculator to estimate your potential mortgage options.
At I’m Funding, we are dedicated to helping you navigate the mortgage process smoothly. Whether you need a pre-qualification or a pre-approval, our expert team is here to provide guidance and support every step of the way. Contact us today to begin your journey toward homeownership.