Pre-qualification vs. Pre-approval

What's the difference? Getting pre-qualified just means that you have told a lender your income level and your debt and credit information, and the lender has estimated what you can afford.

Pre-approval, however, puts you much closer to the actual loan and means that the lender has done the leg work of pulling your credit report, checking your debt-to-income ratio, and has done a more in-depth analysis of your situation.

In most cases, you're much better off getting pre-approved so you don't have any surprises when a lender checks your credit report -- particularly if you haven't checked the report yourself first.

What do Lenders Look At?

A lender will look at your employment and your credit history as indicators of how likely you are to pay back your loan. Lenders want to see stability, which means they will look closely any late payments during the last two years of your credit history. They will pay particular attention to any rent or mortgage payments that were over 30 days past due. They'll look at late payments for credit cards during the last six months.

Your employment for the last two years is also important. Lenders look for steady employment with a single employer for the past two years (or at least employment in the same field). Other income -- such as income earned from part-time, overtime, bonuses, or self-employment -- is also acceptable if it has a two-year history.

Don't be afraid that just because you don't have two years with the same employer behind you won't be able to get a mortgage; you may just have to talk to more lenders and look at different types of loans.