Prequalification is the initial step in securing a mortgage. A lender will analyze your current income, debt and basic credit history situation in order to qualify you for a maximum loan amount. This gives you a clear picture of your financial parameters and a maximum housing price (the mortgage amount plus your down payment). Pre-qualification is a general look at what you can afford, not a true approval or analysis of your buying capabilities.

Preapproval is where the lender verifies your income, debt and financial picture, approving the loan subject to a favorable appraisal of the property you select. It's nearly always a good idea to get pre-approved as soon as you know you are ready to buy, and that can only be done by a lender or a mortgage broker working with a lender. Pre-approval means the lender has verified that you can indeed purchase a home loan in a specific price range. It doesn't mean any loan of that amount will be approved, since other factors come into play during the home buying process.

• Lenders usually require that the home appraises for the amount of the sale or the amount of the loan.

• Lenders may have other requirements associated with the appraisal. They usually want to see an appraiser's opinion on how long it would take the house to sell in a normal market. They might look at location.

• Some loans are denied due to structural problems or needed repairs.

Back to Home Buying Tips