What’s the Difference Between Pre-Qualification vs. Pre-Approval?

You will hear a lot of terms during the homebuying process. Two of them that sound similar, but mean very different things, are pre-qualification and pre-approval.

Neither of these guarantee that you will get a mortgage loan, but they do help the seller know you are a good candidate for financing. Here are the differences:

Pre-qualification

• Is an informal estimate of your purchasing power, based on an evaluation of your financial information
• Is a quick and simple process
• Does not request verification of income and debt
• Needs a verbal statement of your financials (in person or over the phone)

Pre-qualification is a good first step as you start the process of buying a home. However, a pre-approval is more valuable because it means that the lender has checked your credit and verified your documentation to approve a specific loan amount.

Pre-approval

• Is a written formal conditional commitment of a specific mortgage amount in which you are approved, based on a review of all your financial information
• Requires that you complete a mortgage application
• Includes a thorough investigation of all your financial information
• Verifies your employment history, income, debts, assets, credit history and credit scores

Your lender will let you know what your pre-approved loan amount will be and that can help you decide which homes you want to target as you search your desired area. Having a pre-approval is very attractive to sellers and can serve as a great negotiating tool when you are trying to purchase a house.

Discover what other financial steps you can take to make sure you’re a good candidate for the homebuying and mortgage process by signing up for a free homebuyer class!