Happy Friday everyone. It's a beautiful day to discover the difference between get qualified and approved.
The first step to acquiring your first investment property is to understand how much you can afford for said property. At a surface level, there doesn't seem to be a huge difference between being pre-qualified and pre-approved for a loan, but there are definitely instances where one is better than the other.
The key difference is that getting pre-approved is a more formal and concrete way of understanding your ability to attain financing on a home.
For a pre-qualification, you will have a discussion with a lender explaining your credit, debt, income and assets. The lender then estimates how much you can potentially borrow.
Getting pre-qualified gives you a sense of your financial readiness & is a good first introduction to the various mortgage options. However, it is not a formal arrangement and often doesn't require you needing to show proof of your financial situation. It's a good way for first-time home buyers who are testing the waters and aren't quite ready to jump in.
For a pre-approval, you need to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report. You'll need to provide your W-2s, pay stubs, summary of assets & liabilities.
If the lender decides your financial standing satisfies the requirements, you'll get a pre-approval letter. This will state how much the lender is willing to offer, along with the terms & conditions. Especially in Boston, being able to show this to sellers and listing agents is key for a competitive offer.
It is not a guarantee that you will able to attain financing, but it shows you're a serious buyer, which is half the battle in a market like Boston.
The higher-level takeaway is that if you are looking to immediately acquire a property, you will want a pre-approval letter (these last for 90 days). If you are just looking to get the ball rolling and maybe not acquire a place for say, 6 months, then getting pre-qualified might be all you need at that point in time.
Hope this helps.