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

Are you thinking about buying a house? If so, you’ve probably taken steps to ensure an approval. Maybe you’ve spent the past couple of years boosting your credit score, saving up for the down payment and closing costs, and keeping good income records.

With all of your financial ducks in a row, the next step is to talk with one of our loan experts and start the process. Scheduling a conversation with us before touring homes with a real estate agent is crucial because you’ll know what you can afford early on.

Yet, you might be wondering about the differences between two steps in the early stages of a loan: a mortgage pre-approval and a mortgage pre-qualification. You might see these as the same process, which is an easy mistake because some people (and even some banks) use these terms interchangeably.

While these processes share some similarities, they are different. And depending on where you are in the home buying process, one carries much more weight than the other.

Pre-approval vs Pre-qualification

What is a Pre-Qualification?

Once you’ve decided to take the plunge and buy a home, getting pre-qualified is often the first step.

This is a preliminary step that lets you know whether you’re even eligible for a loan, and if so, you’ll receive an estimation of what you can afford to spend on a property.

Getting pre-qualified is a quick process, and in most cases, you’ll fill out a pre-qualification form online. It’s a form that asks basic questions about your income, debts, and credit.

Keep in mind that this is a self-reported form. So, a pre-qualification is based on the information you provide, and at this stage, the information isn’t verified by our underwriters. You’re filling out this form to see whether you’re likely to be approved for a loan. If you’re able to pre-qualify, the next step is a pre-approval.

What is a Pre-Approval?

Once you know that you’re likely to be approved, you can move forward with getting an actual mortgage loan.

You’ll complete a mortgage application, and it’s also at this point that you’ll provide documentation to support financial claims made on your pre-qualification form.

Documentation we may need includes your recent paystubs, tax returns from the previous two years, bank account statements, and we’ll ask you to authorize a credit check. We’ll verify the documentation you provide and review your credit. If everything checks out okay, we’ll let you know the maximum you can spend on a property. You’ll also receive a pre-approval letter to include in your offer to a seller.

Which is Better?

Both a pre-qualification and a pre-approval estimates affordability, but only a pre-approval involves a conditional commitment. So if you’re serious about purchasing a home now, a pre-approval is the better choice.

Now, you can submit an offer with only a pre-qualification letter. Just know that a pre-qualification might not impress a seller because a lender hasn’t verified your financial information.

If you submit an offer with only a pre-qualification, and another buyer submits an offer with a pre-approval, the seller may accept their offer over yours.

To be clear, though, a pre-approval doesn’t guarantee a mortgage loan. It’s a conditional approval, so your application still has to go through underwriting before you receive a final approval. But, as long as your income, credit and job situation doesn’t change after getting pre-approved, and the home’s appraisal supports the value of the home you’re buying, you shouldn’t have a problem closing on the mortgage loan.

Bottom Line

So, which one should you choose? If you’re at the early stage of buying a home and want to know whether you’re eligible for a loan, a pre-qualification is a great first step.

Once you’re ready to move forward and have a serious intent to purchase, give our loan experts a call to start the pre-approval process. We’re always available to answer your questions and discuss home loan options with you. Give us a call or fill out the contact us.