What is the Difference Between Pre-Qualification and Pre-Approval

Are you ready to take the plunge into homeownership? Great! But before you make your dream of owning a home a reality, you may have to familiarize yourself with some of the jargon.

Among the terms you’re likely to come across are pre-qualification and pre-approval. While they may sound similar—and some people may use them interchangeably—they are different steps in the mortgage application process.

So what is the difference between pre-qualification and pre-approval?

What is Pre-Qualification?

If you’re just starting to explore the idea of buying a home, mortgage pre-qualification is a great place to start. According to a Zillow survey, 1 in 4 prospective buyers reports getting pre-qualified before working with a real estate agent.

Pre-qualification gives you a sense of how much you can borrow (i.e., your financial readiness). Think of it as dipping your toe to test the water before plunging into the mortgage-securing process. It’s an opportunity to weigh and discuss your mortgage options and the viability of your goals/dreams with a mortgage expert.

To be pre-qualified, you basically give your lender a broad overview of your finances—including your credit, debt, income, and assets. Based on this information, the lender will then estimate the mortgage you ‘qualify’ for. This means pre-qualification is only as accurate as the information you report to the lender.

While mortgage pre-qualification is helpful, it’s only a rough self-reported estimate that most sellers may be reluctant to consider. If you’re ready to go shopping for a home in the near future, you’re better off applying for a mortgage pre-approval—which gives you a more comprehensive outlook of your financial readiness.

What is Pre-Approval?

If pre-qualification is ‘dipping your toes’, pre-approval is diving headfirst into the mortgage process. It’s far more involved. Pre-approval is step two for those who are ready to go hunting for their dream homes in the not-too-distant future.

For mortgage pre-approval, you’ll need to provide proof of your financial history, stability, and employment status. Your lender will dig deep into your credit background and financial information—verifying your income, assets, and debts to ensure you’re ready for the commitment.

After verification, your lender will issue a pre-approval letter that gives a detailed evaluation of the loan amount you’re qualified for, along with an estimate of the interest rate you’ll be charged.

With a pre-approval letter in hand, you have the ‘backing’ of a lender and can confidently start house-hunting—safe in the knowledge that sellers will take your offers seriously. In fact, a survey by Zillow suggests that 85% of home sellers find a pre-approved offer more compelling—as it suggests that financing is more likely to go through if they were to accept the offer.

Please note that a pre-approval letter is valid for a specific period (typically 30-120 days). And because lenders run a credit check (which may impact your credit score) before a pre-approval, it’s best to wait until you’re ready to seriously explore the market before getting pre-approved.

Difference Between Pre-Qualification and Pre-Approval

So, what is the difference between pre-qualification and pre-approval? In a nutshell, pre-qualification gives prospective home buyers a rough sense of where they stand when shopping for a home. On the other hand, pre-approval gives you a more concrete and accurate picture of your financial position and readiness for a mortgage.

Here’s more on mortgage pre-qualification vs pre-approval:

Mortgage Pre-QualificationMortgage Pre-Approval
Financial information is self-reported, and the buyer is accountable for its accuracy.The lender typically runs a comprehensive analysis of your financial background.
A credit check is often not required—and if necessary, it’s a soft check.Includes a hard credit check.
Does not always require proof of assets, income, debt, credit, and other financial details.Proper documentation and verification of your employment and financial status is required.
Real estate agents and home sellers may not be convinced by the buyer’s commitment or ability to finance their offer.Prospective buyers are backed by the lender, which gives sellers and real estate agents confidence in their offers.
Mortgage interest rates are not provided.A pre-approval letter includes the loanable amount and the estimated interest rates.
It’s a relatively quick and straightforward process that can take a few minutes.The process is more comprehensive and may take days to get a pre-approval letter.
A mortgage pre-qualification is not a loan guarantee.A mortgage pre-approval is also not a loan guarantee—but it’s a step closer than a pre-qualification.

Pre-qualification Vs. Pre-approval FAQs

Are the terms “pre-qualification” and “pre-approval” the same thing?

No, they are not. While a pre-qualification and pre-approval can help you gauge the amount of mortgage you can secure to land your dream home, they’re not interchangeable. They may share similar goals, but they are two distinct concepts with different implications in the housing market.

 

Do I need a pre-qualification or pre-approval letter before working with a real estate agent?

Technically, they’re not compulsory. However, obtaining one before actively looking for your next home is highly recommended. Doing so demonstrates your level of commitment to buying a house, which is more desirable to sellers—giving you a competitive edge over other prospective buyers. Pre-approval and pre-qualification letters also help your agent better understand your budget, which can save you from the heartbreak of touring homes beyond your price range.

 

Do I need to be pre-qualified before I can get a mortgage pre-approval?

Not necessarily. You can jump straight into the pre-approval process—as long as you’re ready to buy the home in the near future.

Ready to House Hunt?

If you’re on the hunt for your dream home but not sure how much you can afford, mortgage pre-qualification is a great starting point for figuring out your financial readiness. And if you want to go a step further, a pre-approval can give you a more accurate estimate of the budget you’re working with.

Still got questions? Reach out to one of our real estate experts for personalized advice on pre-qualification, pre-approval, and everything else you need to know about the home-buying process.

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