Are you pre-qualified or pre-approved for a loan?

Most people have an idea of what they can afford and would like to spend before they start looking for a new home.  However, in markets like San Diego, Los Angeles, and the Bay Area that can be fast paced and highly competitive, having a pre-approval letter in hand can be an important factor in getting your offer approved. That’s why it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.

To get pre-qualified for a loan, there is an analysis of information about your debt, income, and assets. We’ll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. Then you will be issued a pre-qualification letter indicating the amount you are pre-qualified to borrow.

It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval letter is an especially favorable point in a close multiple offer situation.

To get pre-approved, you will complete a mortgage application and provide information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements. We’ll review your mortgage options and submit your application to the lender that best meets your needs. Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.

A pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.