You may have a vague idea that there’s something you should do with a lender before you start looking at houses for sale, but if you’re like most people, you’re not quite sure what that is. If you know something about pre-approval or pre-qualification, you’re on the right track, but these two things are often confused with each other. They’re not the same, and one is much better than the other when you’re actually house shopping. We’re going to break down exactly what you need to do with a lender before you start shopping for a home.

Why You Should Meet with a Lender First

It’s in everyone’s best interest—the seller’s, the lender’s, and yours—to make sure you can actually afford the homes you’re looking at potentially buying. If you can’t actually afford the home you pick, it’s going to be a frustrating experience for everyone, but especially for you.

Pre-qualifying for a Mortgage

A pre-qualification is something you do when you’re just casually browsing homes and aren’t ready to buy. It will help you understand what the state of your finances is and what kind of a home you might be able to actually get a mortgage for. It’s kind of like a practice run.

The main downside to pre-qualification is that it’s not as robust as pre-approval. It’s a quick check (it can even be done over the phone or the internet) to see what you could potentially afford based on your income, debt, assets, down payment, employment, and credit score. But the results aren’t verified; they’re just based on the numbers you provide.

Pre-qualification doesn’t carry very much weight with sellers or real estate agents, and it doesn’t show that you’re committed to actually buying a home in the near future. Most real estate agents won’t work with you until you’ve gotten a pre-approval.

An agent can give you a mortgage contact to get the ball rolling, but you can also shop around with other lenders to make sure you’re getting the best rates possible.

Getting Pre-approval for a Mortgage

If you think your finances are in good shape and you’re ready to buy within the next few months, skip pre-qualification and just go straight to pre-approval. A pre-approval is a written (albeit conditional) commitment from a mortgage lender that you can afford a home up to a certain amount.

As you can imagine, the pre-approval process is more stringent than the pre-qualification process. You’ll need to fill out a loan application, verify your income, assets, and employment, and have your credit report checked. Because you’re completing an actual loan application, the loan will also be underwritten, either manually or automatically. This verification process greatly increases your chances of getting the home you want on the terms you want.

Things you’ll need to get pre-approved for a mortgage:

• Bank/investment account statements (last 60 days)
• Info on debts and living expenses
• Tax returns
• Pay stubs (last 30 days)
• Social security number and ID

Since the process is so thorough, you might be wondering if a pre-approval is a guarantee that a loan will be approved. Unfortunately, it’s not. Pre-approval letters are always conditional and always allow the lender to back out (like if your credit score drops or you lose your job). However, you may be able to lock in your interest rate during the pre-approval process.

A pre-approval means that it’s much more likely that you’ll get the loan you want. A pre-approval helps you shop only for homes that are within your budget, saving you both time and money.

The Bottom Line

The bottom line is that there’s no harm in getting pre-qualified, especially if you’re not quite ready to start seriously shopping for a home. Pre-qualifying can help you understand where your finances might fall short or what kind of house you might be able to afford. It can be a good first step in the mortgage process.

If you’re ready to buy, though, skip straight ahead to pre-approval. It will make it so much easier to get the home you want within your budget.

If there’s anything we can do to help you out, give us a call at (503) 528-9800. We’ll be happy to help you figure out what kind of loan is right for you.

Thank you for the lovely complete information that will be helpful to so many! Hope you are doing well!!

Thanks for your comment, Tom!

Good info. Easy to understand and pass on to Buyers. Thank you.