A mortgage pre-qualification involves a basic screening process that usually reviews a potential buyer's income, liabilities, credit histories, etc. The mortgage pre-qualification process can provide a general idea of one's ability to obtain a mortgage but it is very cursory.
When it is time to write an offer it will be the mortgage pre-approval that will provide the seller a level of confidence the transaction can close if they accept the offer (although there will be boxes to check off along the way to closing)..
When shopping for a home it is the mortgage pre-approval letter that is the major supporting documentation for any offer. [If a buyer is a cash buyer then it is the proof of funds letter.]
The mortgage pre-approval process requires the lender to gather information from prospective buyers for verification. This will require the lender to pull a credit report, verify income and employment history.
The mortgage pre-approval process will result in an approved maximum amount. This is what home buyers should get before they start shopping for a home.
One final word about mortgages in general.. the "approved amount" does not equal "must spend amount."
In a real estate market such as the Brevard County, Florida market which has shifted to favor sellers it is very common for buyers to find themselves in a multiple offer situation. When several buyers want the same home it can become an emotional bidding war - not good! Prospective buyers should answer these two questions BEFORE looking for a home.
- How much can I really afford?
- How much do I really want to spend?