Why Should I Get Pre-Qualified?

One thing we are commonly asked is "when should I get pre-qualified". If you are considering making a move, this can be a great first step. How do you know if you can afford a new house if you don't get pre-qualified?

How Do I Get Pre-Qualified?

In order to get pre-qualified, the first thing you need to do is speak to a mortgage professional. You can also start this process by filling out an online application, but either way you are going to be working with a mortgage professional. A mortgage professional could be someone who works at your bank, or it could be a mortgage broker that shops around your application to different lenders in order to find the best fit for you. 

If you have ever filled out a lease application then you somewhat know what to expect with a mortgage application. While not the exact same, they will ask a lot of the same questions such as name, address, phone number, social security number, etc. They both will ask you where you work and how much you make. What your current living situation is. As with a lease application, you will be expected to provide copies of your pay stubs and maybe even your bank statements. If you are self employed, it becomes a bit more complicated and you will need to provide the last 2 years of tax returns. 

Once all this has been provided, your mortgage professional run your credit. Afterwards, will review everything and if you qualify will provide you and your agent with a letter stating so. 

Pre-Approval or Pre-Qualification?

You might have heard of both pre-approval and pre-qualification. While similar, these are not the same thing. Essentially, a pre-approval is more in depth than a pre-qualification. A pre-qualification is typically based upon application and your credit history. Think of this as being more verbal. You have stated your income and expenses. A pre-approval, on the other hand, means that they have reviewed paystubs, W2's, tax returns etc. A pre-approval is stronger than a pre-qualification and often times sellers will want to know that you are pre-approved, not just pre-qualified. 

What Are the Typical Loan Requirements?

This is a bit of a complicated question. The reason being is that there are a number of different programs that each have their own requirements. The vast majority of loans are broken down into 2 types: Government Loans and Conventional Loans.

Federal Loans

Government loans are backed by the federal government but are issues by any other lender. The US government just acts sort of like a co-signer on the loan. If you default, the federal government repays the bank a portion of the funds. There are a few different loan programs. One of the most well known is the VA loan. This loan is provided to veterans and allows them to purchase with 0 down payment. VA loans don't have a specific credit requirement but don't expect to qualify if your scores are in the 400's. Debt to Income (DTI) of up to 41% is allowed. This means that the maximum of your debt payments can only be 41% of your gross income. If you make $10,000 per month before taxes, your debt payments (house, cars, credit cards, etc.) can only be $4,100. 

Another is the USDA loan which is another 0 down payment loan but is only for rural properties. These loans typically require at least a 640 credit score. The DTI requirement is the same as VA at 41%. 

The largest federal loan program is the FHA loan program. This program is open to most everyone and most every property. It does require a down payment of 3.5% minimum. Other than the low down payment it also has the benefit of lower credit score being able to go as low as 580. Although many lenders won't lend to someone with that low of score. FHA allows for up to 50% DTI although they may require compensating factors such as cash reserves. 


A conventional loan is a non-government backed loan that will typically be sold on the secondary market through either Fannie Mae or Freddie Mac. The reason for this is it allows banks to be able to make more loans. For instance, if a bank has $10,000,000 to lend they can make 50 mortgages of $200,000. If the loans are higher they can make even less. But once they have lent all $10m, they now are stuck until those loans are paid off. This could take 30 years although most people move and sell their home well before the 30 year mark. The bank doesn't want to wait for those loans to be paid off, so they turn around and sell them to investors. This is down through private organizations. The US government set up Fannie Mae and Freddie Mac in order to provide liquidity in the market. The bank will make thousands of loans and then bundle them together and sell them. The bundling lowers risk because if one or two default, the investor is protected because they have a thousand others. But once sold, the bank has their money back and can now make new loans without having to wait years for the old loans to be repaid. 

Conventional loans must follow Fannie Mae and Freddie Mac guidelines in order to be resold. These requirements typically want at least 620 credit score but many lenders require 640 or higher. Most conventional loans allow for up to 50% DTI. There are also loan amount limits. The normal limit as of 2023 is $726,200 although certain high cost areas will have higher limits. 

But I Want to Find the Perfect Home Before Having My Credit Ran

This is a common statement we often hear from clients. While this might seem logical, it is actually foolish. How do you know if you can afford that perfect home if you haven't gotten pre-approved? If you try to buy a home without a pre-approval or pre-qualification then you might be in for some hurt. There are upfront costs associated with purchasing a home and you could be out thousands before finding out that you cannot get approved for a loan.

On top of that, sellers and their agents typically won't even consider an offer without a pre-approval letter. Some agents will even speak to the mortgage professional in order to vet things out. If you haven't taken these steps, your offer will be dead in the water. In a multiple offer situation that house is now gone to someone with a pre-approval. 

Without a pre-approval letter you are risking missing out on the house that you want and it could cost you a lot of time and money. So it is best to just get it done up front. Letters are typically valid for 60-90 days so it gives you time to shop around. Plus it is a simple task to get them updated to keep them valid longer. 

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