What Is a Pre-approval? Pre-qualification vs. Pre-approval Explained

If you're thinking about buying your first home, one of the first things you'll probably hear is:

“You need to get pre-approved.”

But what does that actually mean?

And what's the difference between a pre-qualification and a pre-approval?

Let's break it down.

What Is a Mortgage Pre-approval?

A mortgage preapproval is a lender's preliminary assessment of how much you may be able to borrow based on your financial information.

Your lender will typically look at things like your:

• Income

• Employment

• Credit

• Assets

• Debts

• Down payment funds

Depending on the lender and loan program, this may involve reviewing documentation and verifying your financial information.

The lender can then give you an idea of how much you may qualify to borrow and what your estimated payment could look like.

A pre-approval helps you understand your buying power before you start shopping for a home.

And that's important because the amount a lender says you can spend isn't necessarily the amount you should spend.

Your Realtor and lender can help you look at the bigger picture, including your monthly payment, taxes, insurance, HOA dues and other expenses.

Pre-qualification vs. Pre-approval: What's the Difference?

Pre-qualification

Is generally a more basic estimate of what you may qualify for.

A lender may use information you provide about your income, debts and finances to give you an estimated loan amount.

It's useful for getting an idea of your price range, but it will not involve the same level of documentation or verification as a pre-approval.

Pre-approval

This involves a more thorough review of your financial information and supporting documentation.

Because the lender has taken a closer look at your finances, a preapproval can give you and the seller more confidence that you're financially prepared to purchase the home.

Simply put:

Pre-qualification can help you understand your ballpark.

Pre-approval helps you shop with a stronger understanding of your actual buying power.

Do You Need a Preapproval Before Looking at Homes?

Technically, you can browse homes online without one.

But if you're serious about buying, I recommend getting pre-approved before you start seriously shopping.

Here's why.

Imagine you find the perfect home in Menifee, Murrieta, Temecula or Lake Elsinore.

You love it. You're ready to make an offer.

Then you find out you're not actually approved for that price range.

Or maybe you are approved, but your monthly payment is much higher than you expected.

Getting pre-approved first helps prevent those surprises.

It also allows your Realtor to focus your home search around a realistic price range.

Does a Pre-approval Mean You're Guaranteed a Loan?

No.

This is an important distinction.

A preapproval is not the same thing as final loan approval.

You still have to go through the full mortgage and underwriting process once you're under contract, and your financial situation, the property and other factors will still need to meet the lender's requirements.

Think of a preapproval as an important step toward getting a mortgage — not a guarantee that your loan will close.

Does Getting Pre-approved Hurt Your Credit?

This depends on the lender and how they run the credit check.

A mortgage lender may perform a hard credit inquiry as part of the preapproval process.

If you're shopping around for lenders, it's worth asking how they handle credit inquiries and comparing your options before giving multiple lenders permission to pull your credit. If you aren’t sure buying a home right now makes sense, most lenders can offer a soft credit check to avoid the hard inquiry.

Why I Recommend Getting Pre-approved Early

One of the biggest mistakes first-time buyers can make is starting with the fun part:

Looking at houses.

I get it. Looking at homes is exciting.

But before you fall in love with a house, you want to know what your financing actually looks like.

A preapproval can help you understand:

• Your estimated buying power

• Your potential monthly payment

• How much you may need for your down payment

• What loan programs you may qualify for

• Whether you may qualify for down payment assistance

• What you should be budgeting for closing costs

The Bottom Line

You don't need to have everything figured out before you start thinking about buying a home.

But getting a pre-approval early can make the entire process much easier.

It gives you a realistic starting point, helps you understand your budget and allows your Realtor to help you shop strategically instead of guessing.

And remember:

Just because a lender says you qualify for a certain amount doesn't mean you need to spend that amount.

The goal isn't to find the most expensive home you can technically afford.

It's to find a home you can comfortably afford while still enjoying your life.

If you're thinking about buying your first home in Riverside County and don't know where to start, a conversation with a good lender and a local Realtor can help you figure out what your next step should be.

How Much Money Do You Really Need to Buy a House in Riverside County?

One of the biggest misconceptions about buying a home is that you need 20% down.

For many first-time homebuyers, that's simply not true.

In fact, many buyers are purchasing homes with as little as 3% down on a conventional loan or 3.5% down with an FHA loan.

And depending on the loan program, seller credits, or down payment assistance programs available, some buyers may need even less money out of pocket than they expected.

So, how much money do you really need to buy a home?

Let's break it down.

First-Time Homebuyers: You Do Not Need 20% Down

Many buyers are surprised to learn that a conventional loan requires as little as 3% down for qualified first-time homebuyers.

And "first-time buyer" doesn't always mean you've never owned a home before.

In many cases, you may qualify as a first-time buyer if you have not owned a primary residence in the last three years.

FHA loans are another popular option, especially for first-time buyers, because of their more affordable rates, require a 3.5% down payment.

For example, on a $500,000 home:

• 3% down = $15,000

• 3.5% down = $17,500

• 20% down = $100,000

That's a big difference.

What About Down Payment Assistance?

There are also programs available that may help qualified buyers with down payment or closing cost assistance.

Eligibility requirements vary, and programs can change over time, but they can be a great resource for first-time buyers who have stable income but haven't had years to save a large down payment.

This is one reason I always encourage buyers to have a conversation early with a lender. Sometimes buyers qualify for more options than they realize.

So, How Much Should You Save?

The answer depends on your loan type, purchase price, and overall financial picture.

For some buyers, that number may be higher.

For others, it may be lower thanks to seller credits or assistance programs.

Let’s work out a real transaction for example purposes.

Purchase price: $629,000

3.5% FHA Loan: $22,015

Third Party Fees (these are unique to each house) but include title, escrow and county taxes: $7,800

Property taxes (Riverside county base tax rate is 1.25%): $5,340

Homeowners insurance and per diem interest: $5440

This was all due at closing. The buyers did receive an $18k credit from the sellers so were only responsible for the down payment. This could be you too!

The Bottom Line

Buying a home in Riverside County may require less money upfront than you think.

Many first-time buyers are purchasing homes with:

• 3% down on a conventional loan

• 3.5% down with an FHA loan

• Seller credits to help with closing costs

• Down payment assistance programs

Every buyer's situation is different, which is why the first step isn't searching for homes online.

The first step is understanding your numbers.

If you're thinking about buying a home in Menifee, Murrieta, Temecula, Lake Elsinore, Wildomar, Hemet, San Jacinto or anywhere in Riverside County, I'd be happy to help you understand your options and create a game plan that fits your goals.

What is An Earnest Money Deposit (EMD)?

If you’re buying your first home, you’re going to hear a lot of real estate terms that may sound like another language. EMD is one of them.

So, what is an EMD in real estate?

EMD stands for Earnest Money Deposit. It is a deposit a buyer makes into an escrow account after entering into a purchase agreement. The money is held while you do your due diligence and work toward closing.

Think of it as your skin in the game. It shows the seller you’re serious about purchasing the home.

How Much Is an Earnest Money Deposit in California?

There isn't one required EMD amount for every home purchase in California. The amount is negotiated between the buyer and seller and is often around 1% of the purchase price, although it can vary depending on the transaction.

For example, on a $600,000 home:

1% EMD = $6,000

That can sound like a lot, especially for a first-time buyer. But your EMD isn't an additional expense if you close on the home.

Your earnest money is generally credited toward your purchase at closing.

Think of it as money you're putting into the transaction early, rather than money you're simply giving away.

When Do You Pay Your EMD?

Your purchase contract will specify when your earnest money is due.

In a typical California transaction, the buyer has 3 days to deposit the money with the escrow holder after the purchase agreement has been accepted.

This is why understanding your contract deadlines is so important. Your EMD deadline, inspection and contingency deadlines, loan deadlines and closing date all matter.

You shouldn't have to wonder, “Wait, what am I supposed to do today?”

Is Earnest Money Refundable?

This is one of the biggest questions first-time buyers have.

The answer depends on why the transaction is ending and what your purchase contract says.

Your earnest money is connected to the terms of your purchase agreement, including your contingencies and their deadlines.

If you are within an applicable contingency period and properly exercise your rights under the contract, you may be entitled to have your deposit returned.

Maybe the inspection uncovers something you're uncomfortable with. Maybe the disclosures reveal an issue you weren't expecting. Maybe the appraisal or financing doesn't work out under the terms of your contract.

The important thing to remember is:

Your contingencies are there to give you an opportunity to do your research before fully committing to the purchase.

But deadlines matter. You can't assume your EMD is automatically refundable simply because you changed your mind.

What Happens to Your EMD When You Close?

If everything goes according to plan and you purchase the home, your earnest money doesn't disappear.

It's applied toward the money you're bringing to closing.

So, if you're purchasing a $600,000 home and deposited $6,000 in earnest money, that $6,000 will generally be credited toward your required funds at closing.

So when you hear “earnest money deposit,” think:

“I'm putting money into the transaction to show I'm serious about buying the home while I do my research.”

The Bottom Line

An earnest money deposit is an important part of many California home purchases.

Before making an offer, make sure you understand:

• How much your EMD will be

• When it is due

• Who will hold it

• What your contingencies are

• When your contingency deadlines occur

• What happens to your deposit if the transaction is canceled

Buying your first home doesn't mean you need to know every real estate term before you start.

You just need someone who will explain them along the way.

If you're thinking about buying your first home in Riverside County and aren't sure where to start, I'm happy to help you understand the process, the numbers and what to expect before you ever write an offer.