When Buying Real Estate, Should I Be Pre-Qualified or Pre-Approved For A Mortgage?

​I get this a lot. A new customer comes to me and wants to buy a home. The first thing I ask is, "Have you spoken with a lender, and if so, have you been pre-approved for a mortgage?" They tell me "yes" and off we go to find the perfect home. We find a home, put in an offer and after a little negotiation, we have a signed contract. 

But wait...hold on...not so fast...
The client now goes back to the bank, and low and behold, they are turned down for the loan, and we have to back out. No house for them. "What happened?", you might ask. As it turns out, they were not pre-approved after all. They were only pre-qualified.

"What's the difference?" Well, I’m glad you asked, because there is a very important distinction between the two.

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Home Mortgage Loan Pre-Qualified:

To be pre-qualified for a loan, the lender will ask you a series of questions:

• What is your credit score?
• How much is your income?
• Do you have any recurring debt?
• How much is in your bank account?
• What assets do you currently own?
• And a few other questions that you should definitely be able to answer.

​Based on your answers, they will then give you a quote on what they think you should be able to receive, and they will draft a letter saying as much. What the letter is really saying, though, is “Here is a number that doesn’t really mean anything. We may or may not actually loan you the money to purchase your dream home.”

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Pre-Approved for Mortgage Loan:

Don’t bother with the pre-qualified letter. If you are really serious about purchasing a home than you need to be
Pre-APPROVED.

“What’s the difference?” you ask. A pre-approval letter is an official quote from a lender saying they WILL loan you “x” amount for a property.

A pre-qualified letter says that they will POSSIBLY loan you “x” amount IF everything you say has been checked and verified.

In order to be pre-approved, the bank is going to need:

• Pay stubs
• Bank statements
• A photocopy of your I.D.
• Two years of tax returns
• And a few other items that your lender will specify.
• They will also run a credit check

This process usually takes about a day or two, but it is a necessary step to take if you truly want to be a homeowner.

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Now listen very closely to this last bit…

Just because you have been pre-approved, does not mean that the lender won’t yank that financing from you at the last minute. They check your credit right before closing to make sure that nothing has changed to your credit score or debt to income ratio. So repeat after me…

“I will not buy anything until after closing!”

I mean it. More customers have lost their loan because they went out and bought a new car, or new furniture for their new house, or anything that makes you put an extra charge on your credit card, deplete the funds in your bank account, or take out a loan. Just don’t do it! Those things can wait.

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If you are ready to take the plunge into buying a new home, call me. I don’t require a pre-approval letter to become your Realtor.
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Michele Boyer, REALTOR
Magnolia Properties
386-315-4162
boyer33@gmail.com 
www.BuyNSB homes.com