<< Mike’s Blog << Pre-Qualification & Pre-Approval: Two Different Steps

When you start looking for your dream home, you need to know how much mortgage you will qualify for. Your real estate agent might ask you to get a pre-qualification letter. However, just because you are pre-qualified doesn’t mean that you will get the loan. You need a pre-approval for that, and even then, the mortgage company might not approve your application.

PRE-QUALIFICATION
A pre-qualification letter just tells you how much loan you can afford. The lender does not check your credit, your debt-to-income ratio, or other factors before issuing a pre-qualification letter. Additionally, a pre-qualification letter is dependent on the information you provide to the lender. The pre-qualification essentially gives you an estimate of how much home you can afford so that you do not look at homes that are not within your range.

To get a pre-qualification, you supply the lender with your assets, debt, and income. Because the lender bases its decision on the information you provide, rather than information from outside sources, a pre-qualification is not a guarantee that you will get the loan.

PRE-APPROVAL
Getting pre-approved for a loan usually takes longer than getting pre-qualified. The lender pulls your credit report and might ask for additional documents, including tax records and bank statements. To get pre-approved, you must complete a loan application and provide your social security number. The lender might charge an application fee for a pre-approval.

With a pre-approval, you will have a closer interest rate assessment, which is usually not finalized until the loan goes through underwriting. Once the lender pre-approves you, it will send you a conditional commitment for the loan amount. You can look for homes at or below that price.

In a market when buyers bid against each other — a seller’s market — having a pre-approval letter might give you a step up with the seller, who will more likely choose an offer by someone more likely to get the loan. Thus, if you and someone else submit a bid on your dream home, but the other person only has a pre-qualification letter, the seller might accept your offer, even if it is not as good as the other buyer’s offer, simply because you are more likely to get the mortgage.

For a pre-approval, you will need to:

• Complete the lender’s mortgage application
• Possibly pay an application fee
• Supply your social security number and allow the lender to pull your credit
• Provide financial information to help the lender make a decision
• Tell the lender how much you plan to put up as a down payment

After you are pre-approved and the seller accepts your offer, you will then have to provide the rest of the documentation to the lender, including the accepted offer, bank statements, retirement account statements, taxes for up to two years, proof of income, and other documents that will help the lender come to a concrete decision.

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Dedicated to providing exceptional, personalized service, Real Estate Broker Mike Flannagan takes pride in the relationships he builds, working relentlessly on your behalf. Mike is a Northern Virginia real estate expert with extensive experience in Fairfax, Loudoun, and Arlington Counties. Click here to get to know him better.