Many homebuyers can become frustrated when navigating being "pre-qualified" by their lender vs. "pre-approved." What does this mean, and what's the difference? A trusted mortgage broker in Texas can provide some tips to help first-time homebuyers before applying for the best FHA loan Texas offers or any mortgage—but we're going to answer a few questions in this blog. Here's what homebuyers need to know about pre-approval vs. pre-qualification and home loans.
What Is the Difference Between Being Pre-Qualified and Pre-Approved?
It's not simply semantics! There is a difference between pre-qualified and pre-approved.
The Pre-Qualified Stage
When a loan process is in the pre-qualification stage, potential borrowers submit all relevant financial information to their mortgage lender. Then, the lender determines if they qualify for a particular loan—without (yet) earning an approval decision.
Becoming pre-qualified for a home loan simply means that you have filled out the necessary paperwork and provided your lenders with documentation so they can review and approve your application and credit profile. Being pre-qualified does not guarantee you will be approved. However, it's an important step that shows the lender you are ready to take on this kind of commitment.
The Pre-Approved Stage
If you are pre-approved for an FHA loan or conventional loans, it most likely means a lender, like Texas United Mortgage, has conducted an employment and income verification and a credit assessment. They will then compare the results against the list of guidelines that an underwriter requires them to follow.
Pre-approval is the closest thing to approval without a purchase contract. Buyers complete a mortgage application and have their claims verified by the lender. If you're pre-approved, you'll get a pre-approval letter, which is essentially an offer to lend you a specific amount of money. Typically, a pre-approval letter will be valid for 90 days.
Companies like Texas United Mortgage use the pre-approval process to screen potential borrowers so that a lender knows whether or not they could qualify before requiring an application. The critical difference between being "pre-approved" versus being "pre-qualified" is that the lender has already agreed to give you a mortgage up to a certain amount once you are pre-approved. This is why many lenders ask new homebuyers to get pre-qualified upfront, so there are no surprises when applying for financing.
In a competitive real estate market (like many areas throughout Texas), sellers and real estate agents often require pre-approval before showing homes to buyers or considering an offer.
What About Credit Scores?
Can a low credit score keep you from getting pre-approved? It can. Most FHA home loans and other loans require a minimum credit score during prequalification.
The minimum score for FHA loan is 500, according to HUD. To take advantage of the 3.5% down payment option for this loan, you'll need a score of 580 or higher. Borrowers with credit scores of 500 and 579 must put down at least 10% of the purchase price. However, bad credit mortgage loans are possible. Working with mortgage lenders like Texas United can help you find the right loan for your credit score.
How Long Does it Take to Get Pre-Approved?
The time it takes to get pre-approved for a home mortgage can vary depending on the lender you work with. However, most lenders will require a complete application, including documentation of your income, assets, and debts. This process can take anywhere from a few days to a few weeks.
How Do I Know Which One I Need?
If you are a homebuyer in Houston, you will likely need to be pre-approved to bid on a property. This means the lender has already looked at your credit score and debt-to-income ratio and has decided you are eligible for a loan. Being pre-approved gives you an advantage over other buyers because it shows you are serious about buying a home.
However, buyers must remember that being pre-approved does not mean that you are guaranteed to be approved for a loan—but it is a good indication that you might be eligible. The benefit of being pre-approved is that it shows real estate agents and sellers that you are serious about purchasing a new home, increasing your chances of getting the house. It also gives you an advantage over other buyers because pre-approved lets sellers know that you are a reliable buyer.
Get Pre-Approved With Texas United Mortgage!
If you're trying to decide whether or not you should be pre-approved for a mortgage during your homebuying journey, the answer is yes! The best way to find out if you qualify for a home loan is to get started with the process today. Texas United Mortgage can help you start through our application process. We can even provide an estimate of how much your monthly mortgage payment will be or how to improve your credit score to qualify for better rates. Reach out soon, and let's talk!
If you have more questions as a first-time homebuyer, download our free resource called the "First Time Home Buyers Guide."