With the housing market warming up in many areas and multiple offers becoming more commonplace, buyers who want an advantage in the bidding process may need more than just a mortgage pre-qualification. If you want to increase your competitiveness, you may benefit from a pre-approval.
What's the difference?
Before you start shopping, it’s important to know the difference between pre-qualification and pre-approval:
Pre-qualification: You provide basic info to the lender and get a general idea of what you qualify for. Pre-qualification is an important start to the home-buying process, but without taking the next step, real estate agents and sellers may suspect you’re just “window shopping.”
Pre-approval: You provide financial and employment history to the lender and get a specific loan amount for which you’ve been approved. By getting a pre-approval, real estate agents and sellers will know that you’re serious and a qualified buyer.
|Requires mortgage application||No||Yes|
|Requires application fee||No||Maybe|
|Requires credit history check||No||Yes|
|Based on review of your finances||No||Yes|
|Requires estimate of down payment amount||No||Yes|
|Lender provides an estimate of loan amount||Yes||No|
|Lender provides a specific loan amount||No||Yes|
|Lender provides interest rate information||No||Yes|
Why should I get pre-approved?
Here are 7 key advantages:
- You'll discover how much you can confidently offer when you find the right home.
- It may open doors to homes and neighborhoods you didn't realize you could afford.
- It will also save you time and effort by eliminating properties beyond your price range.
- You can shop for a home with confidence, knowing you won't be turned down for a loan.
- It could help you win a bidding war against others who may not qualify.
- You'll be considered a more serious homebuyer than someone who is "just looking."
- Once you find a home, the mortgage process can proceed more quickly.
When should I get pre-approved?
The best time to get pre-approved is before you begin house-hunting. Having a pre-approval can give you an advantage over other potential buyers when it comes time to negotiate and place an offer on a house.
Is there any reason to wait to get pre-approved?
Yes, if you’re not serious about making an offer on a home or think you’ll spend significant time shopping. Most lender pre-approvals are good for only 60 to 90 days. Another reason to wait may be if you don’t want an inquiry on your credit report.
How do I get pre-approved?
A lender reviews your credit history in detail to determine a specific mortgage amount for which you’re approved.
What info do I need to start digging for?
The documents to get pre-approved are the same as those you’d need to get a mortgage.
- W2 forms from past 2 years for all borrowers
- Pay stubs from past 1 to 3 months for all borrowers
- Personal tax returns from past 2 years for all borrowers
- Social Security Number
- Monthly debt and living expenses
Once you get pre-approved, the number may exceed the amount you feel you can comfortably afford―so it pays to borrow cautiously.
For more helpful home-buying tips and information, explore Navy Federal’s MakingCents home-buying track, which offers guidance for the first-time or seasoned homebuyer.