Before you begin your home search in earnest, I highly recommend that you work with a lender to get pre-approved for a home. Many home buyers will talk to a lender quickly and get pre-qualified, but this is not the same thing.

Mortgage Pre-Qualification

Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.

But here’s the rub: Most often, the pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects.

The pre-qualification analysis is based on the information you have provided and may not look past the statements that you have made about your income, assets, and liabilities.

Pre-Approval Is Better

Pre-approved buyers are ahead in the home buying game.  If you make an offer on a home and then apply for a loan instead of the other way around,  you are at the mercy of the lender who now knows that you don’t have time to shop around.

A pre-approval letter is the real deal, a statement from a lender that you qualify for a specific mortgage amount based on an underwriter’s review of all of your financial information: credit report, pay stubs, bank statement, salary, assets, and obligations.

Pre-approval should mean your loan is contingent only on the appraisal of the home you choose, providing that nothing changes in your financial picture before closing.

This makes you as close to a cash buyer as you can be and gives you a huge advantage in a competitive market and when multiple offers have been made on a house.

Pre-approved buyers generally close escrow more quickly since most of the paperwork has already been taken care of.

While pre-qualification can be helpful in determining how much a lender is willing to give you, a pre-approval letter will make a stronger impression on sellers and let them know you have the cash to back up an offer.