Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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MORTGAGE
What Is a Pre-qualification? Pre-qualification vs. Preapproval
What You'll Learn: What is a pre-qualification letter; pre-qualified vs. preapproved for a mortgage
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EXPECTED READ TIME: 4 MINUTES
July 13, 2023
Early on in your homebuying journey, you may hear about getting pre-qualified for a mortgage. While it’s not always necessary, pre-qualification for a mortgage can help you establish a relationship with a lender and get a better idea of how much home you can realistically afford.
In this article, we’ll explore some frequently asked questions surrounding this topic including: What is a mortgage pre-qualification letter? Can you pre-qualify for a mortgage without affecting credit? What's the difference between a pre-qualification and a preapproval for a mortgage?
What does it mean to get pre-qualified for a mortgage?
Getting pre-qualified is one of the first steps in the home buying process. After you’ve done some work on your own – thinking through your housing wants and needs, checking your credit score, and running estimates in a mortgage affordability calculator – it’s time to get an outside perspective.
Think of pre-qualification as a foot in the door with a potential lender. You’ll supply some basic information about your income and expenses, and they’ll provide an estimate of how much you might be able to borrow.
Pre-qualification provides:
- An initial ballpark of your purchasing ability, allowing you to begin looking at houses in your price range
- An opportunity to work on areas that may need improving, such as your credit
- A chance to get to know a lender and the types of loans that may be best for you
For example: During pre-qualification you learn that you qualify for a VA loan, which could potentially mean no down payment. This could speed up your homebuying timeline significantly.
Pre-qualification does not provide:
- Approval or guarantee that a loan will be approved
What is a pre-qualification letter?
A mortgage pre-qualification letter is a document from a lender stating they will likely lend money to you up to a certain amount. It may specify that it is for informational purposes only and is based on financial details and conversations that have not been verified.
Is a pre-qualification letter enough to make an offer?
A pre-qualification letter is a great starting place. But when it comes time to make an offer, most real estate agents and sellers will require a higher level of documentation: a preapproval letter.
What is the difference between pre-qualified and preapproved?
It’s easy to mix these terms up because they look so similar. Many lenders make clear distinctions between mortgage pre-qualification vs. preapproval.
With a pre-qualification:
- Outside of a soft credit check, your financial data won't be verified
- Your lender will provide an estimated loan amount you may be able to borrow
With a preapproval:
- Your credit and income will be verified
- Your lender will provide an exact loan amount you may be able to borrow
While a preapproval brings you one step closer, neither option provides approval or guarantee for the loan.
Does mortgage pre-qualification affect your credit score?
As mentioned, most lenders request a soft credit check during pre-qualification. A soft credit check, or soft inquiry, provides a view of your credit report without being linked to an application for credit. Unlike a hard inquiry, it does not affect your credit score.
Do lenders pull credit after pre-qualification?
The soft credit check as part of pre-qualification provides an initial view of your credit history. If you move forward with preapproval, and eventually a loan application, your credit will be pulled again – this time as a hard inquiry.
How long does the pre-qualification process take?
Sometimes you can expect to get a pre-qualification letter back quickly, possibly within the same day. This can depend on the complexity of your situation and your lender’s workload.
Does pre-qualified mean you will get the loan?
Pre-qualification provides an estimated amount you may be able to borrow. It’s a good sign, but remember, it’s based on data that a lender has not yet verified. Pre-qualification is not a guaranteed loan offer.
How long does pre-qualification last?
Unlike a preapproval, which is typically only valid for 60 to 90 days, a pre-qualification doesn’t typically have an expiration. It’s best used as a preliminary step to estimate your buying power until you’re ready to request a preapproval.
Ready? How to get pre-qualified for a home loan
If you’re early in your home buying journey, now is the perfect time to get pre-qualified.
To be pre-qualified for a mortgage you'll likely need to provide:
- Income information, including yearly and monthly gross income
- Basic banking account information, such as names and balances
- Potential down payment amount
- Desired amount to borrow with a mortgage
Understanding what a pre-qualification is, what's involved in the process, and what the potential benefits are can help you prepare to take those first steps toward buying the right home for you.
Are you a first-time homebuyer? Go from curious to closing with our free eBook download.
SIMILAR ARTICLES
What Is Preapproval?
A preapproval is a key part of starting your homebuying process. PenFed Credit Union explains what a preapproval is, why you need one, and how to get it.
Soft Credit Check vs. Hard Credit Check: What’s the Difference?
Understanding the differences between soft and hard credit checks can help you better manage your finances.
Will a Prequalification or Preapproval Affect Your Credit Score?
Find out - What is prequalification vs. preapproval? How will a credit check affect your credit score? Will a prequalification help you when you put an offer in on a home?
Home Buying Process Step-by-Step
In home buying, it's important to understand everything that's involved. Follow PenFed Credit Union's step-by-step process before you step into your new home.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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