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

Unless you are paying cash for your new purchase, before you begin shopping, you should speak with a mortgage broker/banker to figure out how much you can afford. This will put you in a better position as a buyer.

Pre-Qualification and Pre-Approval are essentially the same thing.

A prequalification means that the lender has verbally taken a loan application and has confirmed your ability to purchase subject to review of YOUR verification documents (income, assets, etc.) and review and verification of the PROPERTY (appraisal, title, etc.).

A preapproval means that the lender has verbally taken a loan application, reviewed YOUR verification documents (income, assets, etc.), received an automated underwriting approval and has confirmed your ability to purchase subject to review and verification of the PROPERTY (appraisal, title, etc.).

By knowing what your financial parameters are, your REALTOR® can spend more time looking for houses that “fit” and less time pursuing dead ends. No matter how much you might want a 4000 square foot home for $275,000, if your qualifications say $125,000, your qualifications say $125,000. When it comes to mortgages, “yes, but” doesn’t carry much weight!

Want to strengthen your bargaining position?  Get prequalified.

Want your offer to stand out in a case of multiple offers for the same house? Get prequalified.

Look at it from the seller’s perspective. If you had 2 offers on the table for your house, one from a fully prequalified buyer and the other from an “I’ll get around to that soon” buyer–to which offer would you devote the most attention?  Even if the prequalified buyer’s offer was $1000 less, would you take the chance on the buyer that perhaps may not be qualified? When it comes to a seller evaluating offers, “a bird in the hand…” definitely applies.

It is important to remember that the amount of mortgage you will qualify for is the maximum. It is the amount that the lender feels you can afford, but it is not necessarily the amount that you want to pay. It sometimes is advantageous to be conservative here. For example, if you qualify for a $100,000 mortgage and you have $15,000 available in cash for down payment and closing costs, you are qualified to buy homes with a maximum selling price of $115,000. So as to not push yourself to the limit, you may want to look at homes that sell in the $100,000 to $110,000 range. Too many buyers simply rush off to the $115,000 level and some find themselves strapped when it comes time to purchase necessary items (such as draperies, additional furniture and lawn and garden tools, for example) or when they forget to factor in increases in monthly expenses (for example utilities and maintenance and repair costs).

To get pre-qualified for a loan, the loan officer will collect information about your debt, income, and assets.  They will 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. A Loan Status Report (“LSR”) will be issued 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.

To get pre-approved, you will complete a mortgage application and provide the loan officer with various information verifying your employment, assets and financial status such as W-2 forms, bank statements and other documentation.

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.


  • You will receive an exact amount of money that you can qualify for.  This allows you to view properties you are certain that you can afford.
  • You will have an estimate of your monthly payment, so you can figure it in to your budget.
  • You will receive an estimate of the amount of closing costs and down payment that you will need to bring to the closing table.
  • You and your lender can select the best loan program for your particular situation.
  • If you are a first time home-buyer, you might qualify for a special loan package which would allow you to get more home for your money.

About luxpropertygroup

Lux Home Group consists of FULL TIME real estate professionals in the Phoenix area. Real Estate is not only our job, it is our passion. So, if you are interested in buying, selling, or renting a home in the greater Phoenix Metropolitan Area, or you would like to get involved in the fabulous world of real estate sales or investing, give us a call at 480.442.1442 or email us at If you just want to hang out with some super fabulous can call us for that, too.

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