Not Understanding the Difference Between ‘Pre-qualified’ vs. ‘Pre-approved

Before I bought my first home, I thought “pre-qualified” and “pre-approved” meant the same thing (and most Americans do too). But they are very different. Think of it this way: being “qualified” for a job does not automatically guarantee that you are “approved” and hired for the job. The same is true when it comes to purchasing a home. Here is the difference:

PRE-QUALIFIED for a Mortgage Loan = an ESTIMATE on the how much house you can afford and the amount of credit you would LIKELY qualify for from a financial lender.

Information to pre-qualify might be drawn from a few payroll check stubs, an online credit report, a couple of bank statements and the latest information on interest rates. It’s a guide to get you into the RIGHT BALLPARK

PRE-APPROVED for a Mortgage Loan = a WRITTEN COMMITMENT issued by a financial lender after a thorough analysis of your creditworthiness, including verification of income, resources, and other matters that are part of a normal credit evaluation.

This is a closer examination of everything required to issue you an actual mortgage loan commitment and subsequent closing. Being a PRE-APPROVED BUYER provides greater assurance that financing for a home purchase can be secured than a mere pre- qualification. You’ve actually gotten a HIT and are ON FIRST BASE! HOWEVER, pre-approvals are subject to a variety of terms and conditions, including a satisfactory house appraisal and clear title report. But, if you have a Pre-Approval Document in hand, you’re closer to making that HOME RUN at a successful closing of your home purchase!

Not Preparing for Additional Costs

When you’re shopping for a home, you have plenty on your HOME BUYING TO DO LIST so you can secure a mortgage, such as getting together documents and making sure income, assets and credit required for financing the purchase are all in order. But, don’t make the mistake of forgetting about additional costs after the house is purchased! This list is not meant to scare you, but rather empower you so you are completely prepared for the cost of homeownership. Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike renters, YOU are responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs. This may occasionally include expensive items like a new roof or a new furnace. Be sure you consider the following costs:

  • provision for possible increases in electric bill, heating bill, water bill, sewer usage bill
  • provision for property taxes, property insurance
  • provision for window covering,furniture, carpet and other home decor
  • provision for damage caused by future snowfall or excessive rain
  • provision for gardening tools and other lawn care items
  • provision for home improvement and repair tools


Asking ‘How Much Do I Qualify for? rather than ‘How Much Can I Afford?’

First time homebuyers often stumble in the area of budget planning for their mortgage, confusing what the lending bank is willing to loan them for the purchase based upon their financial status on paper, and what the actual income and expenses add up to in real time. You may qualify for more – but if you choose to max out by paying the top number you qualify for, you may make it impossible to plan for anything else in your life in the future like expanding your family with children, investing in a business or taking that dream vacation for three months.

Planning and holding to a personal BUDGET should be the guiding principle that determines the monthly mortgage payment you will be most comfortable with over an extended period of time.

Before being pre-approved for a mortgage loan, have a monthly payment in mind. Know the full effect of the impact of property taxes and HOA fees prior to viewing homes. Be informed as to what your monthly payment would be at a particular home prior to seeing it. Know in advance if you have the needed down payment funds so the monthly payment is the only other key factor in determining the home you want to buy.

Getting a Realtor BEFORE Getting a Mortgage

Most first time home buyers think getting a realtor is the first step! Make sure you don’t put the cart before the horse by running out and enlisting the skills of a realtor before knowing if you can even afford a house! Shopping for an affordable mortgage is the first step toward owning a home. It’s the horse that drives the cart. This isn’t a terrible idea, it’s just simply doing things backward. Plopping that cart in front of the horse instead of after will not move you forward. If you go to a Realtor first, they are going to want to know if you’ve been pre-approved for a loan.

If a Realtor starts showing you houses, and you fall in love with one, and then find that you can’t MAKE get approved for a loan, you will be disappointed and will have wasted a lot of your time.

Start the home buying process by getting pre-approved for a mortgage first, then, secure a realtor. This will help you look at homes in the price range that you can afford, and spare you the heartache of getting attached to a home for which you can’t get a loan.

Not Getting a Home Inspection

When you buy a car, it’s always wise to have a mechanic you trust check it out to be sure you’re not purchasing a lemon. This is a wise practice when purchasing a home, too. Hiring a CERTIFIED HOME INSPECTOR to do the job is a few hundred dollars well spent compared to the amount of money it could cost you in repairs if you purchase a Money Pit! But – BUYER BEWARE: Many people don’t fully understand what happens in a home inspection or what they need to do to get the most out of it. Choosing the right fellow for the job is the first step. Don’t be satisfied with whomever is willing to do it for the least amount of money – they often have the least experience. Use this checklist to be sure you’ve hired the right guy for the job:

  • Ask for two or three referrals from your realtor and trusted friends and interview each to make the best choice
  • Ask about licensing, professional affiliations and credentials


Ready to get started? The Best place to start is with a conversation!