Andy Holloman

The difference between pre-qualification and pre-approval is simple. Pre-approval means that a lender has reviewed the key documents involved in underwriting—income and assets. Think of it as a “mini-underwrite.” Pre-qualification is done by recording the data provided by buyers without reviewing the actual documents. When it comes to which action is better for borrowers, it is best to follow the recommendations of your loan officer regarding which one is appropriate for your situation.

Lenders will use a simple ratio to determine the amount of home you can qualify for. Often called a “debt ratio,” it is simply a measurement of your monthly expenses, per your credit report, plus a new mortgage payment. This figure is divided by your monthly gross earnings. Typically, borrowers need a debt ratio between 40% and 45% to qualify. In some cases, certain loan types will allow for a higher debt ratio or may require a lower one. Check with your lender and give them all the information they need to ensure that your debt ratio calculation is accurate so they can place you in the loan option best suited for you.

There are no “hard and fast” rules when it comes to a minimum credit score, as different loan types will allow for different scores. Also, remember that credit scores consumers may see through Credit Karma, their credit card site, or other websites may use a different scoring model (VantageScore) compared to the model commonly used in the lending world (FICO). If you are aware that your credit score may be an issue, discuss that with your lender so they can offer you guidance on the best loan option now or on how your situation can be improved over time.

Typically, down payments range between 3% and 20%. Some advantages are available to borrowers who can put down 20%, but there are many options for smaller down payments. Your lender may also recommend zero-down options if they are applicable. The important factor when it comes to a down payment is to be accurate about what is practical for you, and don’t hesitate to disclose the entire amount you have available, if any. Your lender can best serve you by being aware of the range of funds you have available and can thus give you several options.

Most of the time, the mortgage process takes 30 days from the time of application to closing. It is essential, though, to be prepared for delays. Because there are about 15 people involved in the mortgage process, it can be delayed due to unforeseen circumstances. Always allow for extra time, and be careful not to commit to any hard deadlines until your loan officer gives you the green light to lock in a closing date. In most cases, your planned closing date will happen.

Yes. Real estate agents will bring up the question of pre-qualification or pre-approval very early in the process to ensure that you are able to purchase any home you express interest in. They know that speaking with a lender is an essential part of the purchase process. In order to provide you with the best advice, real estate agents need to know that you are capable of purchasing in the price range you desire. Lender conversations are sometimes avoided because buyers are worried or feel that they have to start providing a lot of documents. It is normally a 10-minute conversation and is very pain-free. Documents will come later in the process, and having your credit reviewed is not detrimental to your score in the least.