In any type of real estate market, it is critical to have a trusted lender on your team. When my clients don't have their own lender, I often recommend at least three for them to talk with to compare rates and offerings. I only recommend lenders who I have worked with personally, or who have successfully helped my previous clients.
Pre-approval
When writing an offer in a fast moving sellers' market, a pre-approval is necessary if you expect to compete with other offers. Even if my client is just starting to look at real estate, I always recommend a pre-approval over a pre-qualification. It is a much more accurate tool in determining their financial ability to buy a home.
A pre-approval is based on submitting a loan application, providing the lender with your financial documentation, such as W2s, bank statements, records of assets, debt, and ordering a credit report. A pre-approval will provide with a written conditional approval for an exact maximum loan amount. There is sometimes a fee for this service.
Pre-qualification
When someone is seeking a general idea of what they might be able to afford, or during a slow moving buyer's market, you can typically call or email a lender and ask about how much you can afford. The response is usually quick and based solely on the information you provide over the phone, such as gross income, debt and assets. There is no application required, no credit report, and no review by underwriting. I only recommend a pre-qualification if you are at the very beginning of your real estate search. When working with brand new buyers, I often require that my client get a pre-qualification at minimum. Without at least that, Neither my client nor I have any idea what they can afford. There's no sense looking at properties that are outside your price range. Once you become serious, I always recommend that you obtain a pre-approval letter.
Banker vs mortgage advisor?
The end result of using either is typically the same... you get a loan. I don't favor one over the other, but I do recommend shopping around, as sometimes a mortgage advisor has multiple lenders at their disposal, where a bank has only what their company offers.
Online lenders?
I have helped clients who had successful transactions using an online lender, and others who almost lost the property because of slow responses and inaccurate information provided to my client.
Personally, I prefer to support local reputable banks and lenders when ever possible. There's nothing like running into a problem and being able to pick up the phone and call the lender directly. In the rare instance, if need be, I visit their office and wait in their office until I get the response I need.
The Bottom Line:
A pre-approval will serve you much better than a qualification, both in the knowledge of what you can actually afford, and in your ability to be taken seriously by both the seller and your agent! I prefer to work with local bank branches and lenders. They are "face-to-face" people and typically part of the local community. But ultimately it is the buyer's choice, not the agent's.
Pro Tip:
Be aware! A pre-approval is based on the maximum mortgage you can qualify for. It assumes minimum monthly payments on credit card debt, no extra payments or future payments (new car, college fund, vacations, savings, etc.). Always set your own budget based on what you are comfortable spending monthly for a home. Just because you're approved for that amount doesn't mean it will be comfortable for you in the long run. Buying a home is likely to be the largest investment you will make in your lifetime!
