When shopping for a home the first step is to get pre-qualified or pre-approved. Oftentimes, people confuse the two which seem similar but are very different.
Pre-Qualifying: When a buyer gets pre-qualified, they give their lender an overall financial picture with their income, debts, assets, and an estimate of their credit is. No documents are collected, nor credit is run.
Pre-Approval: A pre-approval is much more involved because the lender requests documents such as W2s, tax returns, bank statements, credit checks, and copies of IDs. A Pre-Approval is a much more invasive process that provides the client and realtor with a much more accurate and detailed picture of what the client actually qualifies for.
Even though both options are a great first step in purchasing, a pre-approval is more solid, as the lender has already reviewed all the buyer’s documents and can accurately provide the client the exact amount they qualify for based on their DTI, income, ect. In comparison, a pre-qualification is a rough estimate based on the information the buyer has provided.