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Pre-Qualified Vs. Pre-Approved Vs. Full-Approval - What's the Difference?

The Skinny on Pre-Qualified (Generally -0- costs)

Getting pre-qualified is the initial step in the mortgage process, and it's generally fairly simple. You supply your overall financial picture, including your debt, income and assets. After evaluating this information, you will be given an idea of the mortgage amount for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.

The initial pre-qualification step allows a discussion on the types of mortgages you may be able to obtain.

Because it’s a quick procedure and based only on the information you provide, your pre-qualified amount is not a sure thing. It's just the amount for which you might expect to be approved at. For this reason, being a pre-qualified buyer doesn't carry the same weight as being a pre-approved buyer who has been more thoroughly investigated.

The Skinny on Pre-Approved (Generally $400-$500)

Getting pre-approved is the next step, and is much more involved. You'll complete an official mortgage application and supply necessary documentation so an extensive check on your financial background can be reviewed. Typically at this stage you will have NOT completed all of the paper work for the home you wish to build. However, a more specific mortgage amount can be given to you along with what the current interest rates are at that time.

The advantage of completing this step is that you'll know in advance how much you are approved for. This way, you don't waste time with guessing or looking at properties that are beyond your means.

Full Approval (An appraisal fee is due at this time)

This is the final step in the process and often referred to as a "loan commitment." This means the home has been appraised at an amount that can provide the buyer with a mortgage amount acceptable to them. Your income and credit profile will be checked once again to ensure nothing has changed since the initial approval.

A loan commitment letter is issued. Any conditions need to be met that are on the loan commitment letter followed by the closing of the loan.

The Bottom Line

Be warned. Being “Pre-Qualified” and “Pre-Approved” are not the same thing. Don't assume that you will get the Mortgage you need UNLESS you have been Pre-Approved. This mistake could cost you your new home.