Get pre-approved, not pre-qualified.

What is the difference between pre-qualifed vs. pre-approved for a mortgage? When thinking about buying a home, one of the first things you should do is speak to a lender (bank or otherwise) about the steps required in getting a mortgage.

Getting pre-qualifed for a mortgage

The first step will likely be getting pre-qualified by the lender.  This is a fairly straightforward procedure which can often be done over the phone or internet.  There is usually no cost involved.  By providing a picture of your financial health – income, debt load and assets – the lender will be able to give you an idea of the amount of mortgage that you could qualify for.  This can be helpful in your early days of househunting because it gives you some parameters for the price of house you can afford. But please don’t take a pre-qualification as the lender’s final word or you could be in for a big surprise.  The key phrase is “could qualify for”. A pre-qualification typically does not include a credit check which will be a key factor in the lenders decision as to whether or not to commit to finance you.

Getting pre-approved for a mortgage

Pre-approval is generally a more involved process and may require the payment of a fee.  A full mortgage application is prepared, documentation verifying income is required and a credit check is performed.   If pre-approved the lender will provide a conditional letter of commitment for a specific mortgage amount possibly with specific terms and interest rates that will be good for a specified period of time.   Having the pre-approval will set you ahead in negotiations in that the seller will see that there is no risky “conditional based on financing” clause to be concerned about

Once you’ve found a home you’d like to purchase, the property must appraise to the lender’s satisfaction as the final step in securing the financing commitment.

For more information about mortgages please check out my other posts such as Broker or Bank or Understanding Mortgage Terminology.