THE DIFFERENCE BETWEEN PRE-QUALIFICATION AND PRE-APPROVAL

A pre-qualification is the first step in the pre-approval process. You submit a snapshot of your financial situation to a bank, lender or mortgage broker - including a list of your income, debt, and assets. After a quick review, banks and mortgage lenders provide you with a pre-qualification letter stating an approximation of the mortgage you are pre-qualified for.

Most institutions perform a soft credit pull during this process which will not affect your credit score (it is always important to ask in advance). The pre-qualification process can typically be handled quickly over the phone or as fast as a few minutes online for free.

A pre-approval is more detailed and tends to occur as the follow-up step to a pre-qualification. During the mortgage pre-approval process, a homebuyer will complete a full mortgage application including submission of financial documentation and a hard pull of your credit report for review.

This documentation typically includes details on your income and assets, any liabilities or debts you have, pay stubs, and any other relevant documentation the lender may request. Based on this detailed information, the bank or mortgage company will evaluate your debt to income ratio and credit worthiness, and be able to give you a more specific description of loan sizes as well as the potential interest rate and mortgage payment you may be charged on loan products you are eligible for.

Once pre-approved, the bank or mortgage broker will provide you with a pre-approval letter which will be valid for 60-90 days and explain the loan amount you are approved for.

CAN YOU GET DENIED FOR A MORTGAGE AFTER BEING PRE-APPROVED?

After pre-approval, new negative information could appear in your credit history, dropping your score below the lender’s qualification guidelines If you lost your job prior to closing on the loan, you’d likely be denied. That’s because the lender can no longer verify you’ll be able to make your monthly payments Running up too much credit card debt before the loan closes could put your approval in jeopardy, too

Basically, anything that significantly impacts your financial picture between your pre-approval and loan closing could change your mortgage eligibility.

COMMON MISTAKES DURING THE PRE-APPROVAL PROCESS

Any changes to your mortgage application after getting preapproved could affect your eligibility, interest rate, or home buying budget. After getting pre-approved for a mortgage, try to maintain the status quo until you close on the home. For example:

At any point in time you can call our preferred mortgage broker with questions with a quick response.

Keep the same job Delay major purchases that could impact your credit or debt-to-income ratio

Protect your savings account

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Gather documentation for any large deposits into your bank accounts

If you do have any major changes in any of these areas, be sure to contact your lender as soon as possible.

Otherwise, by holding steady, you should be able to keep your mortgage pre-approval intact and your home offer secure.

DO MORTGAGE PRE-APPROVALS AFFECT YOUR CREDIT SCORE?

Most mortgage preapprovals require a hard pull on your credit, which can affect your credit score. But the impact is usually very small. According to myFICO, one hard inquiry will take less than five points off your FICO score. (For perspective, the full scoring range is 300-850.) And if you get multiple pre-approvals within 2-4 weeks of one another, they all count as a single hard inquiry — so your score will only be dinged once.

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