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What’s the Difference Between Being Pre-Qualified and Pre-Approved?

When looking for a new home, everyone in the family has an opinion. You want something modern and move-in-ready. Your spouse wants a fixer-upper. The kids dream about having their own bathrooms and a movie theater downstairs where they can hang out with friends. Though you have some compromises ahead of you, it’s reassuring to know how much you can borrow before you start the home selection process.

Savvy homebuyers will start their search in a lender's office before starting their hunt for homes. Both pre-approval and pre-qualification are tools that can help move you into your dream home sooner.

First Step: Pre-Qualification

A pre-qualification gives you an idea of how large a loan you'll likely qualify for so you can confidently shop for homes in your price range. When you pre-qualify for a home loan, you receive an estimate of the amount you can borrow, based on your stated financial information. At the beginning of your home search, a pre-qualification meeting with your lender is your chance to learn about different mortgage options and spot any issues with your debt-to-income ratio or credit that might be fixable. The information you provide during a pre-qualification usually isn’t verified, but some lenders may provide you with a pre-qualification letter you may use when making an offer on a home. This letter does not guarantee your loan, but it lets a seller know how much you are likely qualified to borrow.

Second Step: Pre-Approval

A pre-approval takes things a step further to make things official. With a pre-approval, your financial data is verified by your lender. So, you will need to provide your pay stubs, bank statements, tax returns, and other types of financial documentation. Your lender will run a credit check. Once you’re pre-approved, your lender can provide you with a pre-approval letter detailing how much you are qualified to borrow. If a seller receives multiple offers, having a mortgage pre-approval letter makes your offer stand out from the rest because it shows you have the financial means to purchase the property.

Third Step: Make an Offer

Once your offer is accepted and you have a purchase agreement, it’s time to fill out your mortgage application. Thankfully, since you completed the pre-approval, your mortgage application should go smoothly because your lender already has most of the information he or she needs. Remember, the amount you may qualify to borrow may be more than you’ll want to spend. This does not mean that you have to spend the entire amount you qualify for, however, you can talk to your lender about borrowing more than the price you offered on the home to make necessary repairs to your new home.

At Citizens Bank, we can help you secure a mortgage loan to buy your next dream home. Our mortgage experts will provide personal assistance every step of the way and look forward to working with you.

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