The Difference Between Pre-Qualification and Pre-Approval

If you're in the market to buy a home, you may have heard the terms "pre-qualification" and "pre-approval" thrown around. While they may sound similar, these two terms actually refer to different things. In this blog, we'll break down the difference between pre-qualification and pre-approval and explain why each is important in the home buying process.

Pre-Qualification

Pre-qualification is an informal process that gives you an estimate of how much you may be able to borrow from a lender. During the pre-qualification process, you'll provide basic information about your income, debts, and assets to a lender. Based on this information, the lender will give you an estimate of how much you may be able to borrow.

Pre-qualification is a useful tool to help you understand how much home you can afford. It's a quick and easy process that can be done online or over the phone. However, it's important to remember that pre-qualification is not a guarantee that you'll be approved for a mortgage. The lender hasn't yet verified the information you provided or checked your credit score.

Pre-Approval

Pre-approval is a more formal process that involves a lender verifying your financial information and credit score. During the pre-approval process, you'll need to provide documentation of your income, debts, and assets to the lender. The lender will also check your credit score to determine how much you may be able to borrow.

Once you're pre-approved, you'll receive a conditional commitment from the lender that outlines the terms of the loan, including the interest rate, loan amount, and estimated monthly payments. With a pre-approval, you can show sellers that you're a serious buyer and that you have the financing in place to make an offer on a home.

The Bottom Line

In short, pre-qualification is an estimate of how much you may be able to borrow from a lender, while pre-approval is a more formal process that involves verifying your financial information and credit score. Pre-qualification is a useful tool to help you understand how much home you can afford, but pre-approval is necessary if you want to make an offer on a home. By getting pre-approved, you'll have a better idea of how much you can afford and you'll be in a stronger position to negotiate with sellers.