If you’re ready to make your dream of owning a home a reality, you’ve probably already heard that you should consider getting prequalified or preapproved for a mortgage. It’s time to understand exactly what each of those terms means and how they might help you. And when you’re working toward a goal this big, you want every advantage.
Pre-qualification vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much someone can afford to spend on a home, but a pre-approval is much more valuable. It means the lender has checked the potential buyer’s credit and verified the documentation to approve a specific loan amount (the approval usually lasts for a particular period, such as 60 to 90 days).
Potential buyers benefit in several ways by consulting with a lender and obtaining a pre-approval letter. First, they have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check the buyer’s credit and unearth any problems. The homebuyer will also learn the maximum amount they can borrow, which will help set the price range. Using a mortgage calculator is a good resource to budget the costs.
What information do I need to provide?
Requirements for Pre-qualification
- Income information
- Credit check
- Basic information about bank accounts
- Down payment amount and desired mortgage amount
- No tax information required
Requirements for Pre-approval
- Copies of pay stubs that show your most recent 30 days of income
- Credit check
- Bank account numbers or two most recent bank statements
- Down payment amount and desired mortgage amount
- W-2 statements and signed, personal and business tax returns from the past two years
