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Home Loan Pre-Approval and Pre-Qualification

Home Loan Pre-Approval and Pre-Qualification

Wondering what the difference is between home loan pre-approval and pre-qualification? Here’s everything you need to know. Once you’re pre-approved, you’ll have more confidence when you start looking at properties. You’ll know how much you can borrow and what you should borrow, giving you the peace of mind to focus on a few properties.


Obtaining pre-approval is the first step in applying for a home loan. The bank is granting the loan in principle. Your loan amount and interest rate will be determined based on several factors, including your income. Moreover, you must provide details about your net worth and assets. Pre-approval letters are sent by financial institutions to the customer, which will explain the validity of the loan.

In order to get pre-approval, you must complete the loan application form. You must provide your social security number, date of birth, and financial documents. These documents can include Federal tax returns, W-2s, pay stubs, and bank statements. After receiving the pre-approval letter, you should submit these documents to the lender. You should be prepared to wait several days for them to review your application.


Before you start your home loan application, you should get pre-qualified. This is a free process that helps lenders determine how much they will loan you. Lenders gather information about the borrower, either verbally or online. They look at income, debt, and credit reports to determine how much they will lend. A pre-qualification is only an estimate, however. You must submit additional documentation to obtain a formal approval.

Although it is a better option than getting pre-approved, it may not be the best choice for every buyer. While you may be interested in getting pre-qualified, it is important to keep in mind that the amount is estimated and may not be what you expect. A pre-approval letter will let you know how much you qualify for and may help you stand out among other buyers in a bidding war.

Pre-approval letter

A pre-approval letter for a home loan is a great way for a buyer to avoid starting the home buying process all over again. While it can provide a lot of comfort to a seller, it’s important to remember that a letter of pre-approval is not the final word of approval. It is based on the borrower’s current financial situation, and if they get laid off or find another job, they may no longer be able to obtain pre-approval.

Lenders typically use a borrower’s credit score and other details to determine how much they can offer. They then take this information into account to determine what a prospective borrower can afford. A lender’s ideal debt-to-income ratio varies from one lender to the next.

A ratio less than 30% is considered acceptable, and anything less than 20% is considered excellent. If you have more than 45% of your debt, a lender might not be able to pre-approve you. Lenders also look closely at your current means of income. A stable job history is required by most lenders.

Documents required when considering home loan pre-approval and pre-qualification

Before a mortgage lender can approve your home loan application, you need to present a credit report to prove your financial stability. Lenders will pull your credit report with your permission. Credit reports can show any red flags on your credit, such as a past bankruptcy or significant debt. Taking the time to review your credit report can help you qualify for a loan and correct any mistakes. Here are some common documents to provide.

Bank statements for the last two months may also be required by mortgage lenders. Self-employed applicants will also need to provide additional documents during the mortgage pre-approval process. These documents would include profit-and-loss statements and federal tax statements for the last two years. This list of documents is not exhaustive and may change depending on your circumstances. However, the list below gives you a general idea of the types of documents your mortgage lender will require.

Value of pre-approval

The value of home loan pre-approval depends on several factors. First, it is important to remember that your credit score is not the only factor in your home loan approval. Many people overestimate their income. Lenders take into account your adjusted gross income, which means that a person who earns $100,000 a year with write-offs will be approved for a loan of $60,000, for example. Even if you have perfect credit, you should always be aware that a lender may change their mind if your circumstances change.

Lenders want your home purchase to be as smooth as possible, and they are unlikely to pull an offer without a valid reason.

Another benefit of mortgage pre-approval is its time-saving quality. The pre-approval letter allows you to find homes in your price range faster. It also gives you the peace of mind that you can close quickly and get the loan you need. And because a lender already knows your financial situation, they will be able to assess your credit score and determine whether or not you are likely to make your payments in the future.

It also sets you, as the borrower, ahead of the crowd in a very competitive market. It lets the seller know you’re prepared, qualified, and ready to move forward quickly.


Still wonder what is the difference between a home loan pre-approval and pre-qualification? If you are looking to purchase a home in today’s very competitive market, getting pre-qualified and being pre-approved is essential to a successful and smooth transaction. Babak Bijarchi will work with you to help you understand everything you need to have in order to get your dream home. His personalized service will make you feel like you have your best friend working in the business! Give him a call today to discuss your mortgage loan needs.