Pre-qualification and pre-approval are commonly used terms that relate to the mortgage process in New Jersey. And while they sound the same, they’re actually a bit different.
This short version is this: mortgage pre-approval in New Jersey is typically a more detailed and comprehensive review, when compared to a basic pre-qualification. Home buyers can benefit from pre-approval in several ways.
Pre-Qualification vs. Pre-Approval in New Jersey
These two terms have “pre” attached to them because they happen on the front end of the mortgage process — before the appraisal, before underwriting, and before the actual funding. It’s a way to get the ball rolling. But these two terms are not the same.
Here’s the basic difference between pre-qualification and pre-approval:
- Pre-qualification is a quick review of your financial situation, often done without any kind of supporting documents or verification. The mortgage lender estimates how much you might be able to borrow, based on the financial information (income, debts, etc.) that you’ve provided.
- Pre-approval is a more in-depth and useful process. When you get pre-approved for a mortgage loan in New Jersey, you’ll actually provide some additional documents relating to your finances. A credit check is usually performed as well. The end result is that you’ll have a more realistic, and more accurate, idea of how much you can borrow.
So the key difference has to do with verification and documentation. David Reiss, a legal professor and real estate law expert, summed it up nicely in an article for Realtor.com:
“[Pre-qualification] analysis is based on the information that you have provided,” Reiss explained. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.”
Three Important Benefits of Pre-Approval
It’s helpful for home buyers in New Jersey to get pre-approved for a mortgage loan, before conducting an extensive housing search. It can save you time, among other things. Here are some of the key benefits a mortgage pre-approval can offer.
- Narrow the market: When you get pre-approved for a home loan in New Jersey, you’ll have a better idea of how much house you can afford to buy. This is important, because it allows you to narrow down the market to those properties that fall within your price range. And this leads to the second benefit, which is saving time.
- Save time on your home search: By focusing on the properties you can afford, you’ll save time and energy. Overall, you’ll have a more efficient house-hunting experience. So you could potentially shorten your search and find a suitable home faster, by getting pre-approved first.
- Make a stronger offer: In a competitive real estate market, it’s important to make a strong offer. You can actually include your pre-approval letter when submitting your offer. It shows the seller that you are serious about buying their house, and that you’ve been pre-screened by a lender already. This could give you an added advantage in the market.
To sum up: A mortgage pre-qualification is basically a financial snapshot that gives you a general idea of the mortgage you might qualify for. A pre-approval is a more in-depth review of your financial situation, and is therefore more useful to you as a borrower. Getting pre-approved for a mortgage loan in New Jersey can actually give you an advantage in the real estate market.