Leveraging social media marketing can increase your customer base significantly. According to the Pew Research Center’s 2018 Social Media Fact Sheet, social media usage among American adults has grown from 5 percent in 2005 to 69 percent in 2018. Moreover, for the most popular sites, most users are visiting those sites at least once a day. That makes social media a place you will need to be if you want your business to get noticed. However, it can be a challenge to start a social media campaign without any insight or experience. Almost all entrepreneurs currently participate in social media in some fashion; however, many are still not sure how to benefit from it. Using social media marketing optimally includes understanding its power, setting goals, planning social media marketing campaigns, and strategically and consistently utilizing these platforms. What Is Social Media Marketing? Marketing on social media platforms consists of creating a presence on numerous social networks to achieve branding and marketing communications goals. It is a form of online marketing that primarily includes activities like sharing videos, content, and images for marketing purposes. Planning and Goal Setting Before you create your first social media marketing campaign, set business goals and devise a plan to achieve them. If you do not already have set goals for your business, it is essential for you to create them. Consider what you are trying to achieve when marketing on social media sites, who your target audience is, where they spend their time, and how they are using social media. Additionally, determine what message you want to get across to your target audience. You can use social media marketing to achieve key business goals, including: You can only measure your social media ROI once you have established your goals. Other Helpful Tips Some other tips that will be helpful in building a foundation that will serve your brand, customers, and bottom line include:
  1. Provide Quality. Your social media efforts can pay off better by having 100 followers who read, talk, about and share your content, rather than 1000 who disappear after your initial contact.

  2. Have Patience. Success in social media marketing takes consistency and time. Although it is possible to make some quick sales or get some business partnerships on your first attempt, it is far better to commit to the long haul.

  3. Hang With Influencers. Find out who the online influencers are in your industry and hang out with them virtually. Respond to their tweets and Facebook posts, and eventually, they might do the same for you. These will be the people with quality audiences who might just be interested in what you are offering. Make a connection with these people and begin building relationships with them.

  4. Provide Value. If you are using social media exclusively for promoting your products or business opportunity, people will begin to ignore you. You have to add value to the mix. Keep your focus more on creating valuable content and less on conversions.
Available Platforms Facebook Create a business Facebook page. By adding a business page, you can further your conversations with your audience by posting images, articles, and videos that are industry related. You should also pay careful attention to the layout when using Facebook since the visual component is an integral part of the overall Facebook experience. Twitter The Twitter platform lets you broadcast updates (tweets) in 140 characters or less. You can begin by following other tweeters that are in your related industry, which will hopefully garner you followers in return. When making tweets, it is best to mix them up a bit between official-related tweets (discounts, specials, etc.), news tweets and, value tweets. Throw in a little bit of fun and humorous tweets as well. If a customer says something nice about you, be sure to retweet it and always answer any questions that people ask you. Instagram Instagram is one of the most potent social media platforms for visual content. Almost all of it is content consists of photos and video posts. Now with more than 700 million active users, it has become a destination site for those that like to post about food, fashion, travel, the arts and other visually-focused subjects. The other exciting aspect of Instagram is that its post all must originate from a mobile device. Snapchat Snapchat is another mobile-only platform that currently has 150 million-plus app users. Snapchat content is temporary, disappearing from a user’s feed after 24 hours. Snapchat is useful for visual story-driven material and has a strong reach to millennial audiences. YouTube If your business lends itself to product demonstrations or service explanations, take advantage of the popularity of video. YouTube is a fabulous platform for many types of companies to embrace and prosper with as a promotional vehicle. Pinterest Would your business benefit from posting and sharing images? Many small and large businesses alike would, including hair salons, web designers, jewelry stores, restaurants, event planners, and much more can find that Pinterest helps them draw in and engage with existing and prospective customers. LinkedIn While many businesses can benefit from LinkedIn, it is especially beneficial for B2B marketing. It is an excellent platform for small businesses to reach out to other organizations who may be seeking their services. It is also an excellent tool for recruiting employees. Social media marketing will do much more than increase your website traffic and sales. It will also allow you to get a better understanding and learn from your target audience. However, when done right, social marketing can lead to increased traffic, better conversions, and more customers.

Social Media Marketing

View Resource Social Media Marketing
While many lenders and businesses will tell you that you are more than your credit score, the truth is that your credit score matters more than you probably realize. The better you understand your credit score and what affects your score, the better control you can have over your financial future.

Types of Credit Scores

There are two types of credit scores that most people are aware of (however, there are many more!) The most prominent, two, are: The “FICO” score was developed originally by Fair, Isaac and Company, now better known as FICO. Businesses use these scores when making credit decisions. The FICO score can be adapted to meet unique or specific needs based on industry or even types of loans. VantageScore was created as an alternative to FICO by the big three in the business, Experian, TransUnion, and Equifax.It was launched in 2006 and has since remained a force in the industry. Additionally, alternative credit score models and individualized models are used in-house by large corporations. They often factor traditional credit scores into their risk assessments.

Understanding Credit Scores

Suppose you are preparing for a major credit purchase, such as a car or a home. In that case, it is a good idea to get a copy of your credit report to make sure the information is accurate and up-to-date. It’s also a good idea to know where you stand, credit-wise, before applying for any loans. Fortunately, you can obtain a copy of your credit report from any of the three major vendors one time each year. You can also get your credit report free from annualcreditreport.com, which Federal law authorizes. You can receive more than one if you are willing to pay for subsequent copies. One good way to keep a running check of your credit report throughout the year is to get one copy from one of the three major organizations per quarter. That way, you never have to pay, and you have a good idea of your credit picture. So, what does your credit score say about your credit situation? For the average person, it does not say much. However, to lending organizations, it can reveal a lot. The information that is of particular interest to these groups include: The information in your credit report, combined with your credit score, helps lenders determine whether to extend credit to you.

What Affects Your Credit Score?

Credit scores can be affected by a wide range of everyday events, including some things that may surprise you. For instance, applying for credit can harm your credit score. It’s true! This is especially the case if you go and suddenly apply for many types of credit (credit cards, auto loans, mortgages, etc.) at the same time. Lenders would rather see fewer credit applications and long-term relationships with the creditors you do have. The things that affect your credit score most include: Solve these problems on your credit history to enjoy faster approvals, more approvals, and lower interest rates.

Key Takeaways

The Ins and Outs of Credit Scores

View Resource The Ins and Outs of Credit Scores
Saving money and spending less may sound like the same thing, but they involve different financial habits to lead to financial security. Creating healthy spending habits and saving money can be difficult. With product placements, sales, subscriptions, and online shopping, buying is as easy as 1-2-3. But those steps can change, and you can begin making changes to bring yourself more financial security with the tips listed below to help you spend less and save more.

Creating Healthy Spending Habits

  1. Record your expenses. For a month, record all your expenses. At the end of the month, go back and see your spending habits. What surprises you? What is necessary, and what is unnecessary? Evaluate those spending decisions and decide if everything is warranted.
  2. Evaluate your income. Is your income enough to keep up with your spending habits? Take a look at what you bring in and determine if you need to spend less.
  3. Reviewing recurring expenses. Take a look at items such as insurance policies, mobile phone plans, cable service, etc. Can you make changes there to save some money?
  4. Determine your shopping stops ahead of time. Make a plan to shop only at specific stores. Limiting the number of stores you go to will limit the number of unnecessary purchases–saving you time and money!
  5. Shop with a shopping list. Create a shopping list–and stick with it! Get what is on your list to avoid purchasing the other items that catch your eye.

  6. Find patterns in your behavior. Look for trends. For instance:

    • Do you shop because of stress or boredom? If you are bored and shop, you may be making unnecessary purchases.
    • Are you rushing in the morning? If you don’t have time to slow down and eat, you may get the temptation to stop and grab food and coffee–which adds up daily!
    • Do you opt for free trials and forget to cancel? We all do this! You are excited to try a new service, and you forget to cancel it. Make sure that you make a note to cancel when you decide you no longer want the service. Try doing it at that moment to prevent charges if you forget later.
    • Do you routinely incur late fees? Late fees can add up. Create a calendar for when things are due to avoid paying late fees. Also, pay bills early if you can.
    • Are there services you do not use? There are so many cool things out there: subscription boxes, streaming, rental clothes–you name it! But are you using them all? Take a look at what you can do without, and you will begin making better “sign-up” choices.

  7. Create new habits. Everything we do is habitual. If spending is a problem, rework it for a solution. Here are some things that may help create new habits:

    • Drive a different way to work to avoid making specific purchases.
    • Carry only cash. You can’t spend what you don’t have.
    • Find free or low-cost events to attend. Once there, they usually guide you to others.

When and Where to Spend Less

There are many key areas you can focus on to spend less, including: Food Clothes Overall

How to Save

The best way to save money is to have it added for you! Check the interest rates at your financial institution and find the highest one. The more you put in there, the more you make off of it.

Takeaway

Changing your spending habits is not easy. It is a lifestyle change. Start with one thing you can change and work from there. Start with your audits and evaluate what changes you will make. From there, take baby steps. Over time, you will feel free and richer!

The Difference Between Spending Less and Saving Money

View Resource The Difference Between Spending Less and Saving Money
Tracking your expenses and spending is a great way to ensure you are not living beyond your means. No one wants to have their power cut off because they have to have that expensive handbag or coffee every morning. Below we will go over effective ways to categorize and track your expenses.

Needs, Wants, and Obligations

There is a significant difference between the things you need, your obligations, and things you want. You need things such as: You are obligated to: You may want: Before setting a budget or preparing to track expenses, you must first determine your specific needs, wants, and obligations, as these vary from person to person. Some of the things you need may include: You are obligated to pay things such as: Expenses that accumulate based on things you want may include:

Tracking Expenses

Tracking the amount of money you are bringing in versus the amount of money you are taking out each month can help you save a tremendous amount of money if that is your goal. Account statements: To start, look over all of your account statements, including all checking accounts, savings accounts, and any credit cards you may own. Determining where your money is going each month is the first, and perhaps most important, step to tracking your expenses. Create a budget: Budgeting is not for the faint of heart, and it entails hard work and dedication to succeed. Once you have successfully determined where you are spending your money each month, you can begin grouping things you need versus those you want. Determining necessities versus vanities will look a little different for each person; therefore, no two budgets will be the same. Begin your budget by allotting for things you need to survive and those financial obligations you have incurred. These may include items such as rent, mortgage, an auto loan note, both health and auto insurance, your electric and water bills, and groceries. It is essential to allot additional money within your necessities for those unexpected expenses, such as an emergency room visit. Once you have laid out your necessities within your budget, you can begin allotting for your vanities. Vanities may include things such as a meal out, a coffee from your local coffeehouse, hitting a night club, or a new handbag. Allow yourself a monthly personal spending limit within your budget, so you do not feel too restricted. Log your purchases: Whether it be a paper report that you fill out by hand or an online application, utilizing an expense report to log your purchases will help ensure you do not exceed your budgeted monthly amount. You can download many different apps straight to your phone for ease of tracking, or you can utilize things like spreadsheets or a simple notebook if you would rather the simplicity of monitoring. Identify necessary changes: After a month has passed of budgeting and expense tracking, you will begin to see your spending habits and be able to tell if your habits are healthy or not. Once you have determined areas where change may be necessary, you can easily make those adjustments in your spending to ensure a better financial future for yourself and your family.

Takeaway

Overall, categorizing and tracking your monthly expenses and spending will not only benefit you in the short term but the long term as well. Tracking expenses can seem quite daunting when you are first starting, but if you can stick with it, you will learn so much more about the things you need than those you may think you need. There are many ways to categorize your monthly necessities and even more ways to track your spending. Whether you choose to go old school and track things by hand, keep your receipts to enter expenses into a spreadsheet, or utilize an online application for convenient expense tracking, you are sure to save and cut down on your monthly payments by doing so.

Categorizing and Tracking Your Expenses

View Resource Categorizing and Tracking Your Expenses
At some point, many of us get into a bind where we need cash fast. It could be a bill that’s due, a medical expense, or a car repair. No matter what the reason, you have to get cash — and get it fast. While quick cash is not a long-term solution, there are quick cash options. Check out some ways that you can acquire cash and make your payment.

Using Your Emergency Fund

If you do not have an emergency fund, now is the time to start one. When the COVID-19 pandemic hit in 2020, it reminded many Americans how important having an emergency fund is, especially when you lose your job. If you are short on cash, this is where having an emergency fund is crucial. If you are stuck, dip into the emergency fund, as that’s why it’s there.

Creating a Budget

If you are consistently low on cash, or you are constantly turning to your emergency fund, you may need to reevaluate your finances and spending. Create a budget to curb the borrowing and cash issues.

Making Fast Cash

However, while the budget is a long-term solution, it is not a quick fix. If you need fast cash, you could try to:

Takeaway

While there are certainly ways to get cash reasonably quickly, it does not solve the underlying issue of not having the extra money in the first place. If you need cash in an emergency, perhaps you need to consider starting an emergency fund or adding more to one. You will be grateful when you do need it. In the meantime, there are plenty of options to get cash quickly, but none of them will likely provide a significant amount of money immediately.

What to Do When You’re Short On Money

View Resource What to Do When You’re Short On Money
Perhaps you have heard the now-famous phrase, “The only two certainties in life are death and taxes,” originally attributed to founding father Ben Franklin (by the author Mark Twain). Estates and estate planning incorporate death and taxes, with a good dose of law thrown to make it interesting (and complicated).

What is Estate Planning?

As defined by common law, your estate is your net worth at a given point in time (meaning, all of your current assets minus any liabilities). Estate planning is an umbrella term encompassing all the major financial and life planning decisions one must make to determine the fate of his or her assets upon death or incapacity. An estate plan also determines the estate’s impact on any dependent children you might have designated in your will and establishes your wishes for medical care. An estate plan can also help simplify the probate process and maximize the amount you can pass on to your heirs. What kinds of assets are in an estate? Common assets on the “plus side” could include real estate (both your primary residence, any second or vacation homes, and any rental properties), automobiles, cash, savings, retirement accounts, health savings accounts, stocks, bonds, exchange-traded funds (ETFs), life insurance policies, valuable artwork, and pensions. Of course, your assets may be different. Ownership in a business is also an asset. The “minus side” would include any debt, such as credit card debt, mortgages, auto loans, liens on any property, current income taxes owed, etc.

Understanding Estate Planning

You do not need to have a deep understanding of estate law or be an attorney to grasp the critical parts of a well-designed estate plan. You should, however, consider consulting with an attorney when you are ready to set up your estate plan, especially if you have a large or complicated estate or special childcare concerns. Hiring an attorney is generally worth it. They address and resolve all kinds of different situations you might not be aware of to ensure that your estate plan is correct. An attorney will also strive to maximize the benefits for your beneficiaries while minimizing the taxes owed on the estate (remember, it’s about death and taxes). Estate taxes, gift taxes, income taxes, and other related taxes may all come in to play when your estate is settled. A basic estate plan involves most or all of the following components:
  1. A personalized will
  2. Trust account(s)
  3. The name of the Executor of the estate
  4. The legal guardians for any dependents
  5. The Durable (or Limited) Financial Power of Attorney
  6. Advance Health Care Directive: Medical Care Directive (also called a Living Will) and name of the Medical Power of Attorney (also called a Health Care Proxy)
  7. Funeral, memorial, and cremation arrangements
  8. Charitable gifts and instructions, if applicable

Where to Start

Now that you have a basic understanding of what estate planning covers, the perfect place to start is to write your will if you do not have one. Everyone needs to have a will (called a Last Will and Testament), even if you have few assets or decide you do not need any further estate planning. Why is having a will so important? A will is a legal document that directs your assets in the right amounts to the correct people (or institutions). If you have dependents, it also names the legal guardian for your minor children and the kind of care you want for them to have. Even if you have a will already, you will want to review it every time you experience a significant life change, such as buying or selling a house, having a child, or getting married or divorced. What if I can’t afford a lawyer? The good news is you may not have to hire a lawyer in some cases. There are several good online resources for writing your own will if your estate is small or not very complicated. TIPBe sure to check the beneficiary status on all your accounts, including retirement accounts and checking and savings accounts. The person you name as the beneficiary is the person you want to inherit the account. Remember, the beneficiary cannot see the balance of your account unless they are a cosigner on that account. What about my medical care needs? A complete estate plan establishes not only your wishes for your assets after death but also sets up any medical care you might need while alive, if you become incapacitated to the point that you are unable to make decisions on your own. An Advance Care Directive (or Living Will) outlines these medical care wishes and includes naming a trusted family member or friend to carry out those wishes. TIPIt is a great idea to set up an Advance Health Care Directive and name a Medical Power of Attorney (Health Care Proxy) while you are alive and well and can think through what you would want if you cannot take care of yourself or make healthcare decisions.

Takeaway

What is Estate Planning

View Resource What is Estate Planning

Digital and mobile wallets have become quite popular among smartphone users in recent years. Digital and mobile wallet payments are becoming the way of the future as the number of users continue to climb day by day. Below we will go over the basics of digital and mobile wallets to help with your decision-making.

What is a Digital and Mobile Wallet?

A digital or mobile wallet, also known as an e-wallet, is precisely that. It is a wallet located digitally within a device, such as a smartphone or a smartwatch. Most require network connectivity for digital or mobile payment capabilities.

There are many popular mobile wallets such as:

These digital and mobile wallets store your credit or debit card information within their database to allow for a more secure, convenient checkout option. Many retailers now have the opportunity to “scan and pay,” meaning you scan your digital or mobile wallet, eliminating the need to carry your physical wallet with you.

Are They Secure?

A digital and mobile wallet is often more secure than carrying your physical wallet containing your debit card, credit cards, or even cash you may have on you. These mobile payments are encrypted, meaning the application does not actively store your actual credit/debit card number or account number.

If your phone is lost or stolen, a digital wallet is much safer than if it were your physical credit or debit cards. The payment information you enter is only accessible to authorized users such as yourself and a company representative.

Using a Digital and Mobile Wallet

Determining which digital or mobile wallet to use often is determined by which brand of smartphone or device you are using, whether it be an iPhone, Android, or other manufacturer. With an iPhone, many users opt for Apple Pay, while those with an Android or other smartphone tend to use Google Pay or Samsung Pay. You can also utilize multiple mobile wallets at one time, including:

Once you have chosen your desired digital wallet, you will begin entering your personal information, such as your name, date of birth, and address. Once you have completed this step, you will enter the credit or debit card information you wish to use within the application. Your card or account information, whichever you choose to use, will immediately be encrypted within the application’s database for your use only.

Using the digital wallet, you can send money directly to a family member, friend, or retailer. The application uses a technology known as near-field communication, meaning it uses radio frequencies to communicate between the two allowing for a successful payment to a retailer.

Not all smartphones utilize near-field communication systems. If your phone does not allow near-field communication, you can often still use a digital wallet. For example, PayPal allows users to make payments using their mobile phone number during checkout for safe, secure payments from your digital wallet.

Not all retailers support mobile payment capabilities; however, you can quickly determine if the retailer of choice can submit your mobile payment by checking the point-of-sale system for the mobile payment indicator. You also may ask a store associate if they accept mobile payments.

What Else Can They Do?

A digital and mobile wallet offers more than just convenient payment options. You can also store boarding passes, hotel reservations, concert tickets, coupons, and other card information.

Takeaway

A digital wallet, or e-wallet, is a secure payment option that holds your encrypted credit, debit, or banking account number securely within the application’s database for a safe, convenient checkout. With more smartphone users utilizing this option each day, more and more retailers will allow this payment method to be an option at checkout.

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Digital and Mobile Wallet Basics

View Resource Digital and Mobile Wallet Basics
Marriage is an exciting milestone in every couple’s life. But with every marriage comes the important conversation of finances. After tying the knot, did you discover that your significant other has a history of bad credit? What do you do now? Below you will learn more about what credit is and how to deal with your spouse’s credit issues.

Why Good Credit Is Important

A credit score is an overall assessment of how financially reliable or unreliable you are based on your credit report. When you are applying for a new loan or line of credit, whether it be a personal loan, auto loan, or even a credit card, it is reported to one of three national credit bureaus and added to your credit report. These credit bureaus also track your ability to repay debts both on time and in full. Having good credit comes into play with many aspects of life. If you wish to purchase a new home or vehicle, a lender will assess your credit report to determine if you are a reliable borrower or not. Also, when doing things such as apartment hunting, the prospective landlord may run a credit check to determine if you can pay your bills on time. A future employer may even run a credit check to determine if you are dependable.

Will My Credit Be Affected?

Simply enough, no. When two people are married, their previous credit history remains their own. Your spouse’s credit score does not directly affect your credit score and vice versa. It does, however, affect your future finances and debts and credit purchases you take on jointly. So, any debts you take on jointly will appear on both you and your spouse’s credit reports. If you and your spouse are applying for a loan together, especially when purchasing a home, and one of you has a low credit score while the other has a much higher score, it may be beneficial to apply with only one of you instead of both. When applying with a spouse with bad credit, you may not be approved for the amount desired or might end up paying a much higher interest rate.

Identify the Issues

It is not uncommon for couples to avoid the discussion of finances, especially before they are married. If you tie the knot and have yet to have a discussion on finances, now is the time to do so. If you or your spouse have credit issues, it is imperative to keep an open mind and try not to judge their past choices. It is essential to understand why your spouse has credit problems to help them identify and attack the source. To figure out where you stand, obtain a copy of both of your credit reports. Take a thorough look over each credit report to determine what led to either yours or your spouse’s credit issues. Was it overspending, the loss of a job, or an emergency? Getting to the root of the cause will help you immensely along the way.

Plan of Attack

To repair damages, you must first learn the ins and outs of what caused them. When reviewing credit reports, make a list of all collections accounts available and the payoff amount for each. Work to pay off each of these debts, either in small amounts of each consecutively or one at a time if it is easier that way. Reduce credit card balances to 30% or less of the total credit limit. Keeping credit card balances to 30% or less of the card’s total limit shows lenders that you can maintain a healthy balance between borrowing and paying off debts. In repairing the damages done to your credit report, one of the options you may want to pursue is to seek out help from a professional credit repair company. These experts spend every day helping others just like you and your spouse, maybe even those who are worse off. A credit repair specialist can make recommendations and help you establish a plan to get you in good standing with credit bureaus. Below are a few tips to aiding in the repair of your spouse’s bad credit: Do not let a significant other’s credit history scare you off. Unless the two of you apply for a joint line of credit, your credit will not be affected in any way. Help your spouse build their credit so the two of you can enjoy all that life has to offer.

Working Through Credit Issues with a Spouse

View Resource Working Through Credit Issues with a Spouse
When purchasing a standard mortgage from a private lender, you may be required to purchase private mortgage insurance (PMI). However, PMI can be costly, usually charging you around 0.5% to 1.0% yearly interest on your loan amount. The interest rate may seem like a small, even negligible amount of money, but if you are purchasing a mortgage for a home, it can be a substantial sum of money. For example, if you purchase a $500,000 home, you could be charged $2,500 and $5,000 a year in mortgage insurance, or approximately $210 to $420 every month. Even for one year of payments, this can be a significant chunk of your money and added together with all of your other bills and expenses; it can add up. So, it is no wonder why people want to get rid of PMI as quickly as possible. Luckily, you can take specific steps to eliminate PMI as promptly as possible. In this article, we will go over what PMI is, its cost, and how to get rid of it.

Defining PMI

Private mortgage insurance is an additional payment to your mortgage that usually ranges between 0.5% to 1.0% of your mortgage balance every year. In addition, PMI is in place to protect your private lender if the home buyer defaults on their mortgage.

PMI Costs

In most cases, homebuyers who use a standard mortgage with a down payment of less than 20% must purchase PMI. In addition, PMI costs depend on the amount of risk a lender has to take on: low risk means lower costs, while high risk usually equates to higher PMI costs. Factors that can affect your PMI costs include your down payment amount, credit history, and type of loan.

Getting Rid of PMI

It is no surprise that anyone that can get rid of PMI generally wants to. Paying for a mortgage alone can be a heavy burden without the weight of additional costs that PMI brings about. There are four standard ways to get rid of your PMI:

Takeaway

PMI can be an extra cost that everyone wants to avoid if they can. Before purchasing a home, consider factors like your credit score, your planned down payment, and the type of loan you are considering purchasing to see if you can do it beforehand to avoid or reduce PMI costs. If you have PMI, try getting over the 20% mark as quickly as possible, or consider refinancing or reappraisals if the housing market is doing well.

Getting Rid of Private Mortgage Insurance

View Resource Getting Rid of Private Mortgage Insurance
Pre-qualified and pre-approved are some of the most common terms you may encounter when applying for a mortgage. Unfortunately, most people often use these two phrases interchangeably, not knowing they are not the same. For this reason, this article discusses everything you need to know about pre-qualification and pre-approval, covering their definitions, requirements, differences, and more.

What Does Pre-Qualified Mean?

During the earliest stages of the lending process, you may want to get some guidance on how much you will be able to borrow when looking to purchase a home. To do that, lenders and banks need to have a rough idea of where you stand financially and your base qualifications for a loan. Therefore, they may request you provide your financial information, including assets, income, debts, etc. This process is known as ‘being pre-qualified’. It can be conducted online, in person, or over the phone and is usually free.

What Does Pre-Approved Mean?

On the other hand, being pre-approved is usually the next step after pre-qualification. Here, you will be required to complete an application for pre-approval for the loan. You will then provide the lender with additional information and documentation along with your application. The lender will then conduct a thorough financial background check based on the provided information. If your application meets all the requirements for that particular loan, the lender will offer a specific loan amount based on your financial background. You will also find out more about the interest rate for the loan you have been pre-approved for at this stage. In addition, pre-approval allows you to begin searching for homes within the price range provided by the bank or lender. Finally, pre-approved means you can start negotiations with the seller because you have a higher chance of being approved for the mortgage.

Differences Between Pre-Qualified and Pre-Approval

As mentioned earlier, these two terms are often thought to mean the same thing but are entirely different. Below is why, but keep in mind there might be slight variations in requirements per lender.

Mortgage Application

In a pre-qualification, you don’t need to fill out a mortgage application. Instead, the lender or bank wants to know where you stand financially. In a pre-approval, you need to fill out a mortgage application.

Application Fees

You do not typically need to pay any application fee during pre-qualification. However, some pre-approval applications involve an application fee.

Financial Background Check

A pre-qualification does not include a financial background check, but pre-approval does. The latter may analyze your bills, debts, credit history, and anything in between to find out whether you are eligible for a mortgage and the exact amount to offer.

End-Goal

The end goal of pre-qualification is to find out about you as the borrower, but a pre-approval focuses on finding out more about your finances. It involves analyzing documentation to prove the information you provided during pre-qualification.

Down Payments

You don’t need to estimate your down payment during pre-qualification, but you do need it for pre-approval.

Loan Estimate

During pre-qualification, the lender will provide an estimate of a loan amount for you. However, the same does not apply for pre-approval; you won’t find out how much the lender can offer until they’ve reviewed your finances.

Loan Amount

The loan amount offered during pre-qualification is just an estimate, which could change during pre-approval. On the other hand, the amount shown during pre-approval is usually the specific amount the lender will give.

Interest Rate

During pre-qualification, the lender won’t tell you anything about the interest rate. But, pre-approval involves disclosing the interest rate after the lender establishes a certain amount they are willing to part with based on your financial background.

Key Takeaways

Pre-qualification and pre-approval have two different meanings, even though they may sound almost the same. During pre-qualification, you’ll provide basic information, such as your income, down payment amount, desired mortgage amount, and so on. But, on the other hand, the pre-approval process requires copies of your pay stubs as proof of income, financial background check, bank statements, down payment amount, desired mortgage amount, tax information, and so on. Another essential thing to note is that pre-qualification comes before pre-approval. Therefore, the lender may provide an estimate of what they can offer based on the information you provided during pre-qualification. The amount may change during pre-approval after reviewing your financial records. Lastly, pre-qualification provides a rough idea of how much mortgage you may be eligible for, while pre-approval gives you the confidence to engage sellers, knowing the lender has a certain pre-approved amount to offer.

Being Pre-Qualified vs. Being Pre-Approved

View Resource Being Pre-Qualified vs. Being Pre-Approved