Mortgage Pre-Qualification, Pre-Approval and Down Payment

There is plenty of real estate terms used in transactions. Needless to say, it can be confusing for both buyers and sellers trying to navigate the course, and the home loan process might feel overwhelming and difficult to understand. Faced with terms like “Pre-Qualification” and “Pre-Approval” that are often (and mistakenly) used interchangeably, it’s no wonder they find themselves wondering how to proceed. So here is the skinny on the two mortgage “Pre’s”…


The first step in obtaining a home loan is to meet with a lender and discuss your financial situation. The lender will inquire about income, job stability, debt and credit (see example online form here at my preferred lenders site) . Once they have performed a basic review of the qualifications and run credit, they will issue a Pre-Qualification Letter to you, the potential buyer. This letter will identify the maximum sales price, down payment requirement and basic terms of the loan, such as interest rate.

The Pre-Qualification letter is used to provide evidence that the buyer has been reviewed by a lender who is couching for their ability to obtain a loan.


A Pre-Approval is quite different. In this case, the lender collects all the necessary information and proof of eligibility and has it reviewed by the lender underwriter for approval. A Pre-Approval letter is almost like shopping with cash, the only remaining piece of the puzzle is the property they are buying.

Down Payment: How much do you need?bank-loan-concept-2-1057032-1279x852

Gone are the days when anyone could buy a home with just a promise and a signature (thank goodness!). The “No Documentation” loans allowed virtually anyone to buy a house with no money down, with just a simple credit check. After the mortgage meltdown, this all changed as lenders tightened guidelines and down payments were once again required.

How much down payment do you actually need? The answer might surprise you; there are many ways to buy a home with less than 20% down payment. Let’s take a look at four economical loan options.

  • 0% Down – There are still two loan programs which allow you to buy a home for no money down; the VA loan and the USDA loan. The VA loan requires the borrower to be a qualified service person or veteran and the USDA loan is for certain areas under the Department of Agriculture (surprisingly, the areas in Michigan include suburban areas, not just rural).
  • 5% Down – Conventional loans with loan limits can allow you to buy a home with as little as 5% down. These loans do have Private Mortgage Insurance (PMI) which can be eliminated when the loan amount falls below the 20% threshold.
  • 3.5% Down – FHA offers first time home buyers a good home loan for only 3.5% down payment. Again, these loans have a limit and PMI but offer a faster entry into the housing market.

If you’re considering buying a new home, talk to a reputable local lender. I am always happy to share my preferred lender information, simply send me a message using the question box to the right.