So you think you’re ready to make the leap to homeownership? Or maybe the time you bought your first house seemed like a blur and you can’t remember the difference between pre-qualifying for a loan vs. obtaining pre-approval for a loan. Well I hope this post will clarify things a bit for you.

The biggest difference between the two is a credit history check and full debt and income verification.

When you pre-qualify for a loan, you are not applying for a specific loan amount. You state your income, any debts you may have and your lender or mortgage broker will do a preliminary calculation of how much you can afford. No credit history check is obtained, and you may not need to provide documentation of your income. You still need to apply for the loan amount you need when the time comes.

When you obtain pre-approval for a loan, you are applying for a loan so your lender or mortgage broker wants to see all your income documentation and runs a credit history check to determine how you’ve paid your debt in the past and what debt you currently have. They gather all this information and determine your FICO score which helps them determine what loan program best suits your situation.

Pre-qualifying will help you in the following ways:

• Generally, interest rates are locked in for a set period of time. You will know in advance exactly what your payments will be on offers you choose to make.
• You won’t waste time considering homes you cannot afford.

Pre-approval will help you in the following ways:

• A seller may choose to make concessions if they know that your financing is secured. You are like a cash buyer, and this may make your offer more competitive.
• You can select the best loan package without being under pressure.

I always recommend that my customers obtain pre-qualification to see how much they may be able to afford and weigh the difference of the payments on a new home against what they are paying now for their housing situation. If they find that they are ready and serious about shopping for a new home, I highly recommend that they obtain pre-approval for a loan.