Mortgage Pre-Approval vs. Pre-Qualification: What Sellers Look For

Before you make an offer on a home, most sellers will want evidence that you can pay for it. For buyers who are borrowing, that usually means a pre-approval letter.

Pre-qualification

A pre-qualification is an estimate based on information you provide, often without the lender verifying it. It is useful early on to understand a price range, but it carries little weight with sellers.

Pre-approval

A pre-approval means the lender has reviewed your application, credit report and documents, such as pay stubs, tax returns and bank statements, and is prepared to lend up to an amount, subject to conditions. Those conditions usually include an appraisal of the home and no major changes to your finances.

A pre-approval letter makes an offer stronger because it shows a lender has already looked at your finances.

Protect your approval

Between pre-approval and settlement, avoid:

• opening new credit or making large purchases on credit;
• changing jobs without talking to your lender first;
• moving large sums of money without a paper trail.

Compare offers using the Loan Estimate

After you apply, lenders must give you a standardized Loan Estimate within three business days. Because every lender uses the same form, you can compare the interest rate, monthly payment, closing costs and cash needed to close side by side. Get more than one.

Review the Closing Disclosure

At least three business days before settlement, you receive a Closing Disclosure with the final terms. Compare it with your Loan Estimate and ask about any differences before settlement day.

Know your total monthly cost

Your payment includes more than principal and interest: property taxes, homeowners insurance and, if applicable, mortgage insurance and association fees. Our mortgage and affordability calculator adds them up.

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