The advantage of being pre-qualified and pre-approved before you start to look for a new home to build is that you’ll know in advance how much you can afford. Many people think if a lender pre-qualifies them for a mortgage, then they have been pre-approved for a new home loan. There is a difference between being pre-qualified and pre-approved. Before meeting with a builder, it is important to have your finances in order.


Getting pre-qualified is the initial step in the mortgage process. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify. Your pre-qualified amount is not a sure thing; it’s just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated.


Getting pre-approved is the next step, and it tends to be much more involved. You’ll complete an official mortgage application (and usually pay an application fee), and then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. From this, the lender can tell you the specific mortgage amount for which you are approved. You’ll also have a better idea of the interest rate you will be charged on the loan and you might be able to lock-in a specific rate.

The Commitment

The loan commitment is issued by a bank when it has approved you, the borrower, and the house you want to build. Your income and credit profile will be checked once again to ensure nothing has changed since the initial approval. A loan commitment letter is issued only when the bank is certain it will lend.

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