First-time homebuyers in CA are on a steep learning curve. There are so many processes, documents, and terminology they have to learn in order to buy a home. This can cause a lot of confusion, especially when the terminology is unclear like with prequalification and preapproval. These two terms sound like they could be interchangeable, however there is a big difference between the two. Here is the difference between mortgage prequalification and preapproval to help you better understand the home-buying process.
What Is Mortgage Prequalification?
Mortgage prequalification is a way to determine how much you can spend on a home. Basically, you meet with your bank and have them do an assessment on whether or not your debt-to-income ratio is acceptable. A prequalification is a non-committal process that allows you to understand what kind of borrowing is available to you. The prequalification process includes reviewing
- Your credit score
- Your monthly debts
- Your expected downpayment
- The expected purchase price of a home
- The potential structure of the loan
With this information, you can determine what homes will be in your price range.
What Is Mortgage Pre-Approval?
Mortgage pre-approval is a lot more involved than a prequalification. It is basically similar to your final mortgage application and provides a lot of details about the cost. For the pre-approval process, your banker will take a detailed look at your income and assets and help you understand how much money you’re qualified for in order to purchase a home. The pre-approval process reviews:
- Everything from your prequalification
- Your full credit history and report
- Types of credit you’ve used
- All your outstanding debts
- Any new accounts
- Earned income and length of employment
- How much money you have in the back
The pre-approval will really give you insight into what exactly you will spend on a mortgage. This helps you understand if you can buy a CA home that you’ve picked out.
How To Ensure You Get A Mortgage Loan At A Great Rate
Getting both a mortgage prequalification and pre-approval can help you understand the areas in your finance you need to fix in order to get the home of your dreams. Before applying for either though, there are some things you can prepare yourself. First, you should get your credit rating so you can understand what needs to be removed to boost your score. Secondly, you’ll need to start saving. The more money you have in savings, the more likely you’ll be able to get a great mortgage rate. Further, if you want an FHA loan, you’ll need to be able to put down 3.5%. Finally, you’ll need to manage your debt. The less debt you have, the more likely you’ll be able to qualify for a loan.
At Professional Mortgage Associates in Sacramento, we can help. We understand the process of buying a home from shopping to close. We’ll help walk you through each step to ensure that you get the best mortgage for your needs. Contact us to learn more.