PRE-QUALIFICATION
Pre-qualification is an informal way to see how much you may be able to borrow or how much a lender may be willing to lend to you. Generally, you can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. And, the lender may be able to give you estimated monthly loan payments to help you budget.
PRE-APPROVAL
Pre-approval is a more formal commitment from a lender - but not a guarantee. A pre-approval usually involves completing an application, and providing supporting documentation to the lender. This process is called a "pre-approval" because it is generally done before you identify a property to buy. So, basically it is a preliminary approval of you as a borrower. Pre-approval gives you a more complete idea of what your loan will cost and how much you can afford. It has the added benefit of showing the sellers how serious you are about buying because you have already started the loan process.
FIND OUT ABOUT YOUR CREDIT HISTORY
There are three major consumer credit reporting companies: Equifax, Experian, and Trans Union. These three companies have a joint website for you to obtain your credit report. It is the official site to obtain a FREE copy of your credit report (no more than once every twelve months). You can visit that site here: www.annualcreditreport.com.
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