If you’re thinking about buying a home, you’ve probably heard the words “pre-qualified” and “pre-approved.” They sound similar, but they shouldn’t automatically be treated as the same thing.
A preliminary qualification may give you a general idea of what you could potentially afford based on information you provide.
A mortgage pre-approval typically involves a more detailed review of your financial situation. Depending on the lender and process, this can include reviewing income, assets, debts and credit information.
Why does this matter?
Imagine finding the perfect home and then discovering that the payment is outside your comfortable budget—or that something on your credit or income documentation needs to be addressed before financing can move forward.
Starting the mortgage conversation earlier can help uncover these issues before you’re under pressure to close a transaction.
It’s also important to remember that the maximum amount a lender may be willing to finance isn’t necessarily the amount you should spend.
Your mortgage payment is only part of homeownership. Property taxes, homeowners insurance, mortgage insurance when applicable, HOA dues, maintenance and other expenses can affect your monthly budget.
Before shopping for homes, consider asking for estimates at several purchase prices.
Instead of simply asking, “What’s the maximum I qualify for?” consider asking, “What purchase price gives me a monthly payment I’m comfortable with?”
That small change in perspective can make your home search much more focused.