It's easy to get "pre-qualified" and "pre-approved" mixed up during the home buying process, and if you're someone interested in perhaps purchasing a new home or condo in downtown Chicago, it's important to recognize the difference. Getting pre-qualified is only the first step in the complex mortgage approval process, and generally, it's a rather simple procedure.
In most pre-qualification cases, potential home buyers will provide their most basic financial information to a lender or mortgage company, which includes your debt, your income, and your assets, and a quick evaluation is done to give buyers an idea of whether or not they qualify for a home loan. Pre-qualification can be done over the phone or on the internet, and can take as little as a few minutes.
So what's the point of getting pre-qualified?
This initial evaluation allows lenders to understand not only your basic financial background, but also any goals or needs you may have during the home buying process, as well as what mortgage options may be the right fit.
Now onto the fun part, the pre-approval process.
Unlike getting pre-qualified, the pre-approval process is much more detailed, and much more involved. Applicants will need to fill out an official home loan application, which usually involves a fee, and also supply the lender with all the necessary documentation that proves the financial background information you provided during the initial pre-approval process. Next, a rather extensive background check is performed, which includes obtaining your credit rating, and if everything is in order, your lender should be able to tell you a specific amount for which you're approved.
So after all this, you might be asking, "why even hassle with the pre-qualification process?"
The easy and short answer is that although it might take a bit more time, it might actually save you more time in the long run. As mentioned, the pre-qualification process can take minutes to complete, while getting pre-approved can sometimes take weeks. As long as you're 100% accurate on the information you send during the pre-qualification, the feedback should be relatively close to what you'll be approved for, allowing home buyers to begin their home search right away, without having to speculate on how much they're able to spend and what their general price range may be.
Home Buying Secret #1: Tighten Up Your Spending 3-6 Months Prior to Buying a Home