Pre-Qualification or Pre-Approval?

If you're new to the wonderful world of home financing, you might not even know that there's a difference between mortgage pre-qualification and mortgage pre-approval. When you're ready to buy a home, it helps to know how many mortgage dollars lenders will loan you. If you know that lenders will lend you $200,000, you won't waste time looking at homes that cost more than that.

That's why it's important to get pre-approved for a mortgage — not just pre-qualified — before you start hunting for homes.

In a pre-approval, a lender will study your income and your credit score to determine how much mortgage money you qualify to borrow. The lender will then provide you with a pre-approval letter stating this figure. A mortgage lender will not only tell you what amount you can borrow, but also your projected monthly payment, your closing costs, and what you should or shouldn’t do with your finances to maintain your eligibility throughout the lending process. If you find the perfect house, you will want to get an offer in before someone else gets it, and that pre-approval letter must accompany your offer.

To start the pre-approval process, you will need copies of certain documents to verify your income, including copies of your two most recent paycheck stubs, two months of bank account statements, last two years of tax returns and most recent W-2 forms. Your lender will also check your credit. This is the big difference between pre-approval and pre-qualification. In a pre-qualification, you give a lender a rough estimate of your income.

Your lender will then tell you how much it would be willing to lend you based on that amount. The lender won't actually verify your income. This is why a pre-approval holds more weight with home sellers. They know that a lender has already reviewed your financial information and your financing is approved. Many sellers prefer working with buyers who have been pre-approved because there is less chance that the home sale will fall through.

With so many mortgage lender options, it can get a little overwhleming to know which one to choose, so don’t hesitate to reach out to me today! I have worked with a number of lenders over my career, and can recommend a few that I know will work in your best interest and get you to the finish line.

— Angela