If you're thinking about buying a home, you've probably heard the terms pre-qualification and pre-approval—but what do they really mean? While they sound similar, they serve different purposes in the homebuying process. Understanding the difference can help you take the right steps toward securing your mortgage.
Pre-qualification is a quick and easy way to get an estimate of how much you may be able to borrow. It’s based on basic financial information you provide, such as your income, debts, and estimated credit score. Because it doesn’t involve a full review of your finances, pre-qualification is a helpful starting point but not a guarantee of loan approval.
Pre-approval, on the other hand, is a more in-depth process. Your mortgage loan officer will verify your income, assets, credit history, and debt-to-income ratio to determine exactly how much you qualify for. Once approved, you’ll receive a pre-approval letter, which is valid for 90 days and shows sellers that you’re a serious buyer. However, any changes to your credit score—such as missing a payment, taking on new debt, or applying for new credit—could impact your pre-approval amount or even your ability to qualify. To keep your buying power consistent throughout your home search, it’s essential to maintain your credit score by making on-time payments and avoiding major financial changes.
Getting pre-approved is an important step toward homeownership, and working with a local mortgage loan officer ensures you’re on the right track. At First Northern Credit Union, our mortgage experts will guide you through the process, helping you determine the best loan options for your needs. Reach out today to get pre-approved and start your home search with confidence!