Pre-Qualification vs. Pre-Approval

Spend time with your mortgage professional.

For first time homebuyers, spending time with a mortgage professional is one of the most important tools you have available to you. Whether it is to discuss ratios, program options, or rates and closing costs, finding out what mortgage amount is affordable to you will make you feel more comfortable when shopping for a new home. In Houston, sellers want to see a pre-approval letter attached to your contract bid. This makes your contract stronger to the seller, especially if the letter is from a local mortgage banker.

Pre-qualification is as simple as a phone call to a mortgage professional. You provide your financial overview in a 10-15 minute conversation. He then takes your information and calculates a rounded sales price that you could qualify for. Some pre-qualifications may include a loan application — others do not. In either case, the information provided to you is only as good or as accurate as the information you have provided to the mortgage professional, who is making “off-the-cuff” calculations. In other words, pre-qualification has limitations for most customers. To truly know your budget, we recommend pre-approval.

Pre-approval includes the completion of a loan application, pulling your credit history, providing a bank statement, a W-2, a recent paycheck stub and maybe a tax return if you are self-employed or receive a high percentage of income in the form of commissions or bonuses. This gives the mortgage professionals the information they need to give you an underwritten approval notice, stating your approved loan amount and the terms of your approved loan. You are now in the best possible position when writing an offer because the seller sees you are conditionally approved to buy the property. It lends credibility and confidence to your offer. Sellers appreciate the importance of being pre-approved and many will request this letter upon submission of an offer.