Getting approved for a home loan is just like playing a game of Jenga. If you're not careful, everything could fall apart at the end!

A common mistake that many buyers make is assuming that a pre-qualification is the same as a pre-approval. Unfortunately, there is world of difference between these two, and we are here to bring you up to speed on how each one functions.

Pre-Qualification

The Pre-Qualification process, simply explained, is getting a brief glimpse at your overall financial picture in relation to how much of a home you can afford, and your income, your debt, and your assets are all taken into consideration. After taking a look at all of this, you can get a good idea as to what you would qualify for.

Think of it this way. How many times have you received all those credit card offers in the mail saying "You're prequalified for $10,000", then you start reading the fine print only to see "subject to credit check", "subject to terms and conditions", etc. This works exactly the same way.

It's honestly as useful as a computer without a monitor!

Now let's go one step further into what a Pre-Approval is and it's benefits.

Pre-Approval

While an initial "Pre-Qual" gives you a rough estimate as to what you should be able to afford, a "Pre-Approval" takes it one step further and digs into the meat of how your financial chemistry is made up. As a heads up, you may or may not have found a house at this point, and that is ok.

First thing you will do is fill out a full application for a mortgage either online, in person, or over the phone. This is where seasoned mortgage professionals differ from the newbies. Being asked the right questions up front can avoid several complications down the line, so be indirectly interviewing the loan officer as well by asking several questions yourself (experience, references, etc.).

What I personally do here is work backwards on the approval amount. You will let me know how much you WANT your payment to be, and I will then let you know how much of a house you should be looking for- this way you won't waste time by looking at properties that are out of your "payment means".

After that is done, the loan officer will run a credit check and also have your loan  "decisioned" through an automated underwriting system. This will give you a response as to whether you are approved, or denied, and for how much exactly.

Tip: Don't count your chickens just yet. Just because you have automated approval doesn't mean you're guaranteed the loan. Again, this is where a good mortgage guy/gal will come into place. There are several factors that can affect your loan application, and experience will come into play.

At that point, if you are approved of course, you will supply certain financial documents such as W-2's, Tax Returns, Paystubs, and Bank Statements to the loan officer. They will be reviewed, as well as your credit, and the loan officer will issue you a Conditional Pre-Approval Letter if everything looks ok.

You are now ready to start looking for houses. When dealing with potential sellers, you will also have more bargaining power and, like eBay, can "bid with confidence"!

Even in a competitive market with several offers on a single property, the seller will know your offer is serious.

Once you have found the right house for you and a contract is fully executed (signed by everyone), your pre-approval will become a complete application and you are on your way to becoming a homeowner. Congratulations in advance!