Pre-qualifying v. Pre-approval for a Mortgage: What's the Difference?

If you’re shopping for a home, learn about the big difference between getting prequalified and preapproved for a mortgage.

Home purchasers sometimes make the mistake of thinking that if a lender pre-qualifies them for a mortgage this means that they have been pre-approved for a home loan. However, this is not the case. The terms “pre-qualified” and “pre-approved” have very different definitions.

If you’re planning on taking out a loan to purchase a home, you should know that there is a difference between pre-qualifying for a mortgage and being pre-approved for one. Read on to learn the distinguishing features between these two terms and why it can cause a big problem if you don’t understand the distinction.

Getting Pre-Qualified for a Mortgage

Pre-qualifying for a loan is the first step in the mortgage process. Typically, it’s a pretty easy one. You can pre-qualify quickly for a loan over the phone or Internet (at no cost) by providing the lender with an overview of your finances, including your income, assets, and debts. The lender then does a review of the information (based on only your word) and will be able to give you a figure for the loan amount that you can probably get.

However, the pre-qualification process does not involve a review of your credit report or verification of your information nor does it require an in-depth analysis of whether or not you can afford to purchase a home. Essentially, the pre-qualification amount that the lender provides is an estimate of what you might be able to eventually be approved to receive once a thorough review of your overall financial health has been completed.

The main reason to get pre-qualified for a loan is so that you get an idea in advance of how much you can afford when shopping for a new home. It's important to understand that the lender makes no assurance that you’ll actually be approved for this amount.

Getting Pre-Approved for a Mortgage

When you are pre-approved for a mortgage loan, this means that you have provided the mortgage lender with information on your income, assets, and liabilities,  and  that the lender has checked and verified that information. This is a much more involved process that getting pre-qualified for a loan.

To get pre-approved for a mortgage loan, you’ll need to fill out an official mortgage application (and pay an application fee) and provide the lender with proof of your income and assets. The lender will also do a thorough review of your credit report and score to determine your credit-worthiness. For example, the lender will look to see if you’ve gone through a  bankruptcy,  foreclosure, or had other dings to your credit. (Learn more about your credit report and score in Nolo’s articles  Credit Report Basics  and  Credit Scores.)

Once the analysis is complete, the lender can pinpoint the specific loan amount for which you are approved and you will receive a conditional commitment in writing. You can then look for a home at or below that price level.

Pre-Approval Gives You an Advantage When Making an Offer

As you might guess, being a pre-approved buyer carries much more weight than being a pre-qualified buyer when it comes to making an offer to purchase a home. This is because once you find the home you want and make an offer, your offer is not contingent on obtaining financing. This saves times and makes your offer more attractive to the seller so that you won’t lose out to another potential buyer who already has financing in place.

On the other hand, if you are only pre-qualified, your offer could very likely be rejected in favor of another offer where the buyer has been pre-approved.

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