These two terms are often confused with each other, even individuals in the mortgage industry get them confused, so do not feel bad if you have been using these terms wrong. Below, we will set the record straight about these two terms.

Pre-Qualification

A pre-qualification is, at its simplest, an estimate of how much house you can afford and how much money a lender would be willing to lend to you based on basic information you provide, such as income, debts, assets, down payment amount, and other financial information.

It is best to get a pre-qualification at the beginning of your home buying search and process to enable you to determine an appropriate price range you are able to afford. This will prevent you and your realtor from wasting time looking at houses that are too expensive.

We will then provide you with a written letter that states how much you qualify for at no cost to you. There is no commitment for either side as this is just an estimate based on unverified information.

Pre-Approval

A pre-approval means we are providing a cautious commitment for mortgage financing. In order to issue a pre-approval, we will need actual documentation that support your claims regarding income, assets, down payment amount, and other financial information relevant to the mortgage. We will also run your credit to determine your risk level and credit worthiness. There is no cost for a pre-approval, but it does require additional time to provide the required documents.

A pre-approval is not a guarantee that you will be approved for a mortgage, but it does show a realtor that you are capable of obtaining a mortgage and have taken the steps necessary to prove this. Before making any offers, most realtors will require you to provide a pre-approval letter from a lender.

At Gershman, we take the pre-approval letters a step further by asking you to provide us the address of the house you would like to make an offer on. The reason for this is so we can include an accurate monthly property tax amount. Property taxes can increase the monthly mortgage cost by $100-350, depending on where you live. This large increase can cause a person’s debt-to-income (DTI) ratio to go above the threshold for approval and prevent them from purchasing a home. To save you and your realtor from making offers that will not get approved for a mortgage, we request that anytime you find a house you want to make an offer on, you send us the address so it can be included in the pre-approval.

A pre-approval is valid for 60 days from the date it is issued and can be conditional upon you satisfying debts or fulfilling other obligations that are currently preventing you from being approved. For example, if you are selling your house and will use the proceeds to pay off debt and use the rest for a down payment, the conditions of the pre-approval will be that you must pay off the debt and show the stated amount for a down payment before we can continue with the loan process.

A pre-approval is not binding, meaning you can bring a pre-approval from another lender and we can work with you to secure a mortgage for your home.

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