First Time buyers, as well as repeat buyers, are often confused by two key terms- what it means to be pre-qualified or pre-approved for a mortgage.
These terms will almost always come up when you speak to a real estate agent be it at an open house or if you ask to see a property. This is a key question because it tells them how serious you are about buying. Getting pre-qualified is a very important initial step for a buyer to complete before you start looking seriously for a home. I would suggest that you do it even before you look online as you will know your price cap and you won’t be disappointed by looking at properties in a price range above what you can afford.
One mortgage lender I spoke to explained it this way. First get pre-qualified. A pre-qualification is when you run the numbers on an unofficial basis. By numbers, I mean your monthly income vs your monthly debt repayment plus mortgage payment, plus heat, plus property taxes. In essence, a prequalification is to determine, how much you can afford. It does not take into consideration the whole financial picture or your credit history. It is a starting point only. It will give you an idea as to what you will need to save for a down payment. You will also find out what type of documentation you will need to gather together for when you go to the next step and seek a pre-approval. At this point there has been no credit check done etc. But, if you have a shaky credit history or if you are carrying a lot of debt, now is the time to discuss with the mortgage specialist how that might impact things when you seek a formal pre-approval from a lender.
Now, you know what it means when a real estate sales person asks you if you are pre-qualified and you will have a rough guideline as to what you can afford and what it will cost you.