Pre-qualify and pre-approve are often used interchangeably – which can be very confusing. If not understood correctly, it can cost you an accepted offer on your new home. Let us provide some clarity on the difference between the two and show you how the pre-approval process works at Waterstone Mortgage.
A pre-qualification is a lender’s estimate of how much you could be eligible to borrow based on the financial information you supply. A pre-qualification is less formal than pre-approval and does not include an income and asset review. A pre-qualification does not mean you will be approved for a loan – it is only an estimate of your creditworthiness based on the information you provided.
If you plan to start looking for a home, it’s a good idea to get pre-approved. Because a pre-qualification is less formal, getting pre-approved will help you make a stronger offer on a home.
A pre-approval means you have met with a lender; your income, assets, and credit have been reviewed (which involves pulling your credit report); and the lender believes you can readily qualify for a given loan amount.
At Waterstone Mortgage, we will gather the following information from you during the pre-approval process:
- Most recent copies of pay stubs for the last 30 consecutive days
- Copy of W-2 statements for past two years
- Copy of complete personal tax returns for past two years
- Complete copy of personal and business tax returns for past two years if either borrower is self-employed
- Statements for last 60 days from any stocks, bonds or mutual funds you wish to disclose for purposes of mortgage loan approval
- Statement from retirement accounts such as 401(k), IRA, etc. covering last 60 days
- Copy of the divorce decree or marital separation agreement if applicable
- Clear copy of borrower(s) driver license
- Clear copy of borrower(s) Social Security card
- Bank statements (checking and savings) for most recent 2 months
After you have been pre-approved, you will receive a pre-approval letter for an exact loan amount, allowing you to look for a home at or below that price level. Although not a final loan commitment, the pre-approval letter can be shown to listing agents when making an offer on a home. It demonstrates your financial strength and shows that you have the ability to finance a purchase.
Your pre-approval is what we call a “conditional commitment”. It is NOT a guaranteed commitment to lend – you will need to have an accepted offer and a final underwriting review before your loan is cleared to close.