If you’re in the market for a new home, going through the home loan pre-qualification process is a smart place to start. With it, not only will you be able to better assess how much home you can afford — you’ll also be able to make a stronger offer on your dream home.

But pre-qualification shouldn’t be confused with the home loan pre-approval process. A home loan pre-approval is a bit more intense and will require more information upfront. Below, we’ll help explain the difference between the two.

Pre-Qualification for a Home Loan

You don’t have to get pre-qualified for a home loan in order to make an offer, but it’s a smart thing to do, especially if you are a serious buyer, and pre-qualification is pretty simple. You will be asked a few basic questions during pre-qualification. This includes your credit score (you can get this free through a website or often online through some banks), your total income (including investments) and debts, and a bit of your career history.

Pre-Qualification Information Needed:

• Credit score

• Total income (including investments)

• Debts

• Career history

You are not obligated to stay with a lender (and in fact, we recommend researching different new home mortgage lenders)  that pre-qualifies you and there are some who can process your information within minutes. Keep in mind, none of this will impact your credit score until you run a hard credit check.

It’s good to get pre-qualification because it will give you a strong idea of what your actual budget is. And when you are ready to make an offer—this happens quickly sometimes, once you’ve found the one—you can include your pre-qualification letter. This letter lets buyers know that you’re serious and capable of affording the home.

Home Loan Pre-Approval Process

Compared to the pre-qualification, you’ll have to put in a little more work during the home loan pre-approval process. You’ll basically be providing all of the same information as above, but you’ll have to submit documents to verify that this information is accurate. These documents are typically submitted online through the loan provider’s portal to avoid sending sensitive material via email.

Pro-tip? Since it’s good to shop around for loans during the home buying process, it might be worth your time to collect all of the information you need and keep it organized on your computer in a folder where you can easily access it. You’ll be asked for the same documents over and over by each lender, so having them readily available can simplify your home buying process.

During the home loan pre-approval process, you will likely have to run a hard credit check. This will impact your credit score. But the good news is—even if you go through the home loan pre-approval process with another ten lenders, and even though they will also require a hard credit check, additional credit checks will not affect your score for the next 45 days. This 45-day window was added to the home buying process to enable lenders to find the best rate available to them.

Going through the home buying process is a super exciting time in anyone’s life—and it brings you that much closer to owning your dream home. You can use this mortgage loan checklist to help you keep up with everything you need to know. Just keep in mind that there are multiple types of loans to consider, from FHA loans to standard loans and different loan programs based on the state you live in, so take the time to find out what loan may be best for you and your financial situation.

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Published 12.09.21