Buying a Home with a Pre-Approved vs Pre-Qualified Loan

Buying a home for the first time is a complicated and sometimes overwhelming experience. There are all sorts of first-timer mistakes that are easy to make, from inspection items to move-in dates. By far the most common first-time home buyer mistake is bidding with a pre-approved loan. There is an unfortunately common myth that a pre-qualified loan is enough to make a serious move on buying a house.

Pre-Qualification is a Marketing Tactic

When you receive an offer for a pre-qualified home loan, that can be pretty exciting. The number is high. The bank or lender says they’ve looked at your finances and you are good-to-go to buy a house with their mortgage. But wait. Pre-qualification is based only on a demographic scan. You may have enough income to potentially be approved. You may have shown up as a mortgage marketing lead in an algorithm. But the bank hasn’t actually confirmed that they will extend you a loan. Bidding on that pre-qualification is a recipe for a deal falling through when an unprepared lender is not ready to extend a true loan.

A pre-qualification is not a commitment, it’s just an offer to get you through the door. To actually make a bid on a home, you need to be pre-approved. This requires an application and official loan approval process.

Let’s take a closer look at the entire start-to-finish process of getting yourself a pre-qualified loan.

Receiving a Pre-Qualified Loan Offer

The first step is often receiving an offer for a pre-qualified loan. It’s important to understand that this is an offer, like an advertisement, not an actual loan that is available to you. A pre-qualification might give you an optimistic loan amount. Additionally, it might say that you have been pre-screened and have qualified for a loan offer. What this means is that your income, surface-level credit score, or marketing persona match what the lender thinks will be a good opportunity. Really, they are inviting you to apply for a properly approved loan.

If you make a bid on a home with a pre-approved loan, you will find the whole qualification process between you and a real loan. So you might as well get ahead of the deal.

Applying for Pre-Approval

When you want to make a bid on a house, you’ll need a pre-approved loan. To do this, talk to your prospective lender and fill out a loan application. Your loan officer will help you fill it out correctly and provide all the additional information about your identity and financial situation. Filling out the application allows the lender to perform a full assessment of your finances and confidently back a loan for your home mortgage.

The Review and Approval Process

Once your application is submitted, the lender will start the process of approval. They will examine your income and your debt-to-income ratio. They will examine your career stability, your ability to save, and possibly the financial stability of others in your household. Your identity and background will be checked for any lender-risk red flags. Your credit will also undergo a hard-inquiry, which gives a full-detail report of your financial history.  This will drop your credit score by 5-10 points for about a year, and is well worth it for an approved home loan.

Buying a House with a Pre-Approved Loan

Once the lender has approved your loan, you can confidently make home bids based on the final amount. Sellers and their agents will take your bids seriously and if a seller accepts your bid, the bank will be able to fulfill that loan immediately upon closing. Contact us today to begin your loan application and pre-approval process.