What is Mortgage Pre-Approval, and How is It Different from Pre-Qualification?

When you’re ready to buy a home, you might hear two terms: pre-qualification and pre-approval. Both are part of the home loan process, but they mean different things and have different levels of importance when it comes to making an offer on a house.

What is Pre-Qualification?

Pre-qualification is the first, simpler step in the mortgage process. It’s like a quick estimate of what you might be able to borrow. When you get pre-qualified, you usually share some basic information with a lender about your income, debts, and savings. Based on this, they give you an idea of how much money you could possibly borrow. But it’s important to remember that pre-qualification is only an estimate.

Pre-qualification can be done over the phone or online, and it doesn’t usually require any official paperwork. Since the lender isn’t verifying your information, a pre-qualification doesn’t carry much weight. It just gives you a rough idea of your price range.

What is Pre-Approval?

Pre-approval is a bigger step that goes deeper into your finances. When you apply for pre-approval, the lender checks your credit score and reviews documents like pay stubs, bank statements, and tax returns. They look at your income, credit history, and other financial information. This helps the lender decide exactly how much they’re willing to lend you.

With a pre-approval, you’ll get a pre-approval letter. This letter shows how much you can borrow and makes you look like a serious buyer. When you put in an offer on a house, having a pre-approval letter can make your offer stronger because it shows the seller that a lender is ready to give you a loan. It’s like having a stamp of approval that says, “This buyer is ready!”

Why Does Pre-Approval Hold More Weight?

Think of pre-approval as your "ticket" to show sellers that you're prepared and qualified to buy their home. Since the lender has already reviewed your financial information, sellers are more likely to take your offer seriously. Without pre-approval, sellers may worry that you’re not ready or able to get the money needed to close the deal.

So, Which Should You Get?

If you’re just beginning to think about buying a home, pre-qualification can be a quick way to get an idea of what you might be able to afford. But if you’re ready to start making offers, pre-approval is usually the way to go.

In short:

• Pre-Qualification: A quick estimate of what you could borrow.
• Pre-Approval: A detailed review that shows you’re ready to buy.

Getting pre-approved can help you shop with confidence, knowing you’re ready to make an offer when you find the right home!