If you ask your friends, co-workers, family members or business associates they will all tell you different things when it comes to the merits of getting pre-approved vs. pre-qualified for a mortgage loan before buying an Austin Texas home for sale but the BIG question is which choice is better?

In this article we will break down mortgage loan pre-approval vs. pre-qualification so you will know which choice is the better option to make when you get ready to buy a home in Austin.

What Exactly Does Pre-Qualified Mean?

During the pre-qualification process the lender will take a “higher level” view of your finances and say that you’re pre-qualified for $200,000 but that doesn’t actually mean you’re going to get pre-approved for that amount because you will need to get pre-approved and this will involve analyzing your credit report, debt to income ratio and your ability to repay a mortgage loan.

Why You Should Get Pre-Approved Before House Hunting

As someone who is serious about searching for an Austin Texas Home for sale the most important thing you should do is get pre-approved before you start house hunting because pre-approval means that your lender will do the following:

  •          Review your finances including: Tax Returns, W2’s, 1099’s, bank statements and sources of income.
  •          Inspect your credit report.
  •          Verify your employment and income.
  •          Confirm that you have a low debt-to-income ratio and the ability to repay your mortgage loan.

Once you get pre-approved for a mortgage loan your pre-approval status will last for up to 90 days and you can submit an offer on a home with a pre-approval letter in hand showing the seller that your financing is confirmed and this will ultimately give your offer the “edge” over other buyers who have not been pre-approved for a mortgage loan yet.

The Skinny on Pre-Approved

Getting pre-approved is the next step, and it tends to be much more involved. You'll complete an official mortgage application (and usually pay an application fee), then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. (Typically at this stage, you will not have found a house yet, so any reference to "property" on the application will be left blank). From this, the lender can tell you the specific mortgage amount for which you are approved. You'll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.

With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. Obviously, this puts you at an advantage when dealing with a potential seller, as he or she will know you're one step closer to obtaining an actual mortgage.

The other advantage of completing both of these steps – pre-qualification and pre-approval – before you start to look for a home is that you'll know in advance how much you can afford. This way, you don't waste time with guessing or looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won't be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious – and could prevent you from losing the home to another potential buyer who already has financing arranged.

Once you have found the right house for you, you'll fill in the appropriate details and your pre-approval will become a complete application.

Getting Committed

The final step in the process is what's called a "loan commitment," which is only issued by a bank when it has approved you, the borrower, and the house in question. This means the home should be appraised at or above the sales price. The bank may also require more information if the appraiser brings up anything he or she feels should be investigated (i.e. structural problems, accessibility issues, outstanding liens or litigation in progress). Your income and credit profile will be checked once again to ensure nothing has changed since the initial approval. (For more, see Understanding Your Mortgage.)

A loan commitment letter is issued only when the bank is certain it will lend, so the commitment date on your purchase contract should be closer to closing than to the date of your offer. (The seller can ask to see that letter as soon as the date has passed, so beware of anyone who tries to put an early commitment date into your contract).

The Bottom Line

Be warned. Pre-approved and pre-qualified are not the same thing. Don't assume that the bank will provide your loan until you have the former. The mistake could cost you your new home!

Source – Investopedia

Buy an Austin Texas Home

To get started with buying an Austin Texas Home for sale contact the Kent Redding Group today by calling us at (512) 306-1001 or click here to connect with us online. 

Posted by Kent Redding on


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