Are You Pre-Approved for a Mortgage?

Differences Between Pre-Qualification and Pre-Approval

Pre-Qualification

Loan pre-qualification does not typically include an analysis of your credit report or an in-depth look at your true ability to buy a home.

You can be pre-qualified by a lender, by a real estate agent or you can do it yourself. The term means that someone has taken a general look at your income and expenses and plugged them in to a debt-to-income ratio formula (total monthly payments divided by total GROSS monthly income).

Pre-qualifying yourself before you start looking for a home gives you a general idea of the price range you can afford. It will not nail-down an interest rate for you. The interest rate, along with other factors, affects the monthly payments a lender will allow you to make.

Pre-Approval

When you are pre-approved for a mortgage, it means a lender has looked closely at both your credit report and your income and determined that you qualify for a loan. The lender will tell you the maximum amount of loan it will make, which loan programs you qualify for, and will discuss the interest rates it will offer for different types of loans.

When you're pre-approved you can go shopping for a home with confidence about your buying power, but it still isn't a guarantee that the lender will approve the loan. Only until the full loan underwriting process has taken place will you be 100% approved. That said, most reputable lenders are not going to hand out a pre-approval letter unless they are SURE that the borrower they are dealing with can clear the full underwriting process, based on the information that they have received.