Buying a home will likely be the largest financial transaction of your life. And unless you’ve hit the lottery or have the last name of Rockefeller, chances are you will need to obtain a mortgage loan to purchase the home in place of paying cash. Thus begins your journey to homeownership - getting pre-approved! 

Until you have executed an agreement to purchase a home, a lender cannot guarantee a mortgage loan. What they can do is review your credit score, your income, and your expense history to determine the amount of money they “safely” lend you to purchase a future home. After review, the lender will give you a letter stating something like:

You will need this type of letter from a bank or mortgage lender to accompany any offer you submit. Having this letter helps instill confidence in the seller that you are financially able to complete the purchase. 

THE DIFFERENCE BETWEEN PRE-APPROVAL AND PRE-QUALIFICATION RECORDS:

You will likely see Pre-Approval and Pre-Qualification used interchangeably for mortgage financing.  

In theory, a “Pre-Qualification Letter” reviews only the buyer’s credit score and credit history. The buyer hasn’t provided all their income information or supported it with pay-stubs. Down payments are not verified. Additionally, some lenders will not review supporting documentation UNTIL a contract is in place and, as a result, will only offer a letter of “pre-qualification. In most cases, this is sufficient when bidding on a home. 

A “Pre-Approval Letter” goes a step further in showing your overall qualification to obtain a mortgage. In this case, a lender will have reviewed supporting documentation for your loan—the odds of being formally approved for a loan increase.  

WHEN TO OBTAIN A PRE-APPROVAL LETTER:

Too often, buyers will start touring homes to find out later that they can’t afford the homes they are seeing, resulting in heartbreak and disappointment. By obtaining a pre-approval letter before you begin touring homes, you will ensure you're only looking at houses you can call home. Going into the process with confidence carries over into submitting an offer when you've found the home for you.

WHERE TO GO FROM HERE:

At TREO, we have connections with several lending partners who offer great rates, excellent service, and credit repair. Should you need it, credit repair is a short-term program that will help you quickly increase your credit score, enabling you to get approved for better loan terms.  

Eddie Cohen from Stockton Mortgage is one example of a fantastic partner who can provide you with a pre-qualification letter within one business day. You can complete a quick application here.