Pre-Qualification vs. Pre-Approval: What California Home Buyers Should Know

Mortgage pre-qualification and mortgage pre-approval. If you’ve been researching the home buying and mortgage process lately, you might have encountered these terms.

But what do they mean, exactly? And what’s the difference between them?

Here’s what California home buyers should know about mortgage pre-qualification and pre-approval.

Pre-Qualification: An Estimated Price Range

The mortgage pre-qualification process gives you an estimated range for financing purposes. You provide the bank or lender with some basic information about your household income and debts, and then receive an estimated price range.

California home buyers can often get pre-qualified online, just by submitting a form with income and debt information. In most cases, borrowers can complete the pre-qualification process without a credit check.

A home buyer might want to get pre-qualified just to get a “ballpark” range for mortgage financing purposes. For example, a borrower who has no idea how much of a loan they can get might use mortgage pre-qualification to establish a general price range.

But the pre-qualification process (usually) doesn’t include a credit check or debt income-versus-debt analysis. So it’s not particularly useful when it comes to house-hunting purposes, making an offer, etc. If you’re actually ready to enter the housing market, a mortgage pre-approval would be more useful.

Pre-Approval: A More Thorough Review Process

Mortgage pre-approval is a more thorough version of pre-qualification. California home buyers can get pre-approved for a loan when they’re ready to start shopping for a house.

Pre-approval typically involves a credit check, and a more in-depth review of the borrower’s income, assets and debts. The goal here is to get a better sense of how much you can borrow, so you can narrow your home search accordingly.

In fact, mortgage pre-approval is the closest you can get to the final approval and funding without having a purchase agreement in hand.

You’ll probably need to submit a mortgage application to get pre-approved. That’s another thing that distinguishes it from the pre-qualification process. A home buyer in California could get pre-qualified without having to submit a loan application. But an application is usually required for a full pre-approval.

The benefits of getting pre-approved include:

• First, it gives you a more accurate picture of your loan amount, since it involves a more thorough review process.
• It can help you limit the scope of your home search to a specific price range, saving you time and energy.
• Pre-approval can also increase your chances of getting your offer accepted.

Which Process Makes Sense for You?

Are you ready to get a real estate agent and start the house-hunting process? If so, a pre-approval is the next logical step. As mentioned above, getting pre-approved prepares you for the home search by establishing a specific price range.

You’ll also receive a pre-approval letter, which you can submit to the seller along with your purchase offer. This shows the seller that you’re serious about (and capable of) buying their home.

If you simply want an estimated mortgage amount based on your income and debts, then a pre-qualification might be worth pursuing. Just know that it won’t prepare you for the house-hunting process the way a pre-approval would.

What Happens After You Get Pre-Approved

So, you’ve decided you’re ready to start shopping for a house, and you’ve received a pre-approval letter from the lender. What happens now? What are the next steps in your path to homeownership?

At this point, you’re ready to enter the real estate market and start looking at homes. You can also choose a real estate agent to work with, if you’re so inclined.

The rest of the process looks like this:

• You find a house you want to buy and make a purchase offer.
• You negotiate with the seller, as needed, to find common ground.
• You and the seller sign the purchase agreement / contract.
• You provide your lender with a copy of the signed agreement.
• Your loan goes through the underwriting process and closing.
• You receive the keys to your new house!

Have mortgage questions? Bridgepoint Funding serves home buyers all across California. We offer a wide range of loan options, including FHA, VA, conventional and jumbo. Please contact us with your questions or to apply for a loan.