Marti Pattinson

REALM Real Estate Professionals

14909 Southwest Freeway Suite 102
Sugar Land, TX 77478


Cell: 281-703-0016   
Phone: 281-703-0016 
Fax: 832-690-5987

Housing Trends

December 2017

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Are you PreApproved or PreQualified?


Smart buyers know that starting the mortgage process early in their search for a home can make for a much smoother real estate transaction. However, simply corresponding with a mortgage lender before you make an offer on a property isn’t enough. You have two options available to you when you contact a lender: pre-qualification and pre-approval. Both may place you in a potentially stronger buying position, but they mean very different things.

Pre-qualification
If a lender pre-qualifies you for a home loan, it gives you an idea of how much money you might qualify to borrow. To obtain pre-qualification, you provide a lender approximate income, current debts and any important details from your credit history. Your lender then calculates how much money you may be eligible to borrow prior to application for a loan. The mortgage lender may even provide you with a Conditional Qualification Letter, which determines your likelihood of obtaining a loan.

Sounds good, right?

Before you rush out and make an offer on a property, remember that all information submitted during pre-qualification is subject to verification at the time the loan application is submitted. In other words, you aren’t guaranteed anything; the amount you are pre-qualified to borrow might be higher than the amount you can actually borrow.

Pre-approval
Pre-approval goes one step further than pre-qualification. Typically, pre-approval means that your financial situation has been verified by the lender. You actually fill out a mortgage loan application.

After examining your financial situation, your lender will commit in writing to fund your loan, pending a successful appraisal of the home and a few other conditions. Your lender may also provide you with a Conditional Approval Letter. There’s no commitment on your part to follow through with the loan, but getting pre-approved for a mortgage enables you to move quickly when you find the home you want and make an offer that is not contingent upon obtaining financing.

It also lets a seller know your offer is serious and could prevent you from losing out to another purchaser who already has financing arranged.

You don’t have to spend it all
If the lender pre-approves you for a bigger loan than you thought possible, take a deep breath. Just because the bank will give you the money doesn't mean you can afford it.

Why? No matter how much financial information a lender requests, you still know more about your financial situation, lifestyle and future plans. If you don't take all these factors into account, you may find yourself with mortgage payments that demand a larger chunk of your income than you anticipated. Or you could have a great new house that you can't afford to furnish.

Your Realtor can explain the mortgage process, describe how it fits into the larger real estate transaction, and show you how to determine the price range you're comfortable with. Be smart, take steps to secure your finances, and get pre-approved for a home loan. Soon, you'll be in the home of your dreams.

Source: Texas Association of REALTORS®
Reprinted with permission.