What Are the Differences in Mortgage Pre-Qualification and Pre-Approval?

Mortgage pre-qualification and pre-approval are both steps in the homebuying process, but they serve different purposes and provide different levels of information to buyers and sellers. Here’s a breakdown of the key differences:

1. Definition and Purpose:

• Pre-Qualification:
• A preliminary step where a lender provides a general estimate of how much you might be able to borrow based on your financial information (income, assets, and debts) without verifying the details.
• It's usually a casual conversation and does not involve a detailed credit check or analysis.
• Helps you get an idea of your price range, but it’s not a strong indication of your ability to get a mortgage.
• Pre-Approval:
• A more formal process where the lender verifies your financial information and conducts a credit check.
• You’ll need to submit documents such as pay stubs, tax returns, and bank statements.
• You receive a conditional commitment in writing for an exact loan amount, which shows sellers you are a serious buyer.

2. Process and Documentation:

• Pre-Qualification:
• Quick and can often be done online or over the phone.
• You provide estimates of your financial details (no documentation is required).
• No credit check, so it doesn’t affect your credit score.
• Pre-Approval:
• Takes more time and requires an application.
• You provide documentation (W-2s, bank statements, tax returns, etc.).
• Involves a credit check and could slightly impact your credit score.

3. Level of Assurance:

• Pre-Qualification:
• Offers a rough estimate of what you might afford but is not based on verified data.
• Sellers do not consider pre-qualification as a serious indicator of a buyer’s financial stability.
• Pre-Approval:
• Provides a more reliable indication of your ability to secure financing because it’s based on verified financial data.
• Shows sellers that you are a qualified buyer, which can make your offer more attractive.

4. Impact on Home Buying Process:

• Pre-Qualification:
• Useful at the beginning of your home search to understand what price range you might consider.
• It’s not required but can help set expectations for yourself.
• Pre-Approval:
• Often required when submitting an offer, as it indicates to sellers that you’re a serious buyer.
• May give you a competitive edge, especially in a competitive housing market.

5. Validity Period:

• Pre-Qualification:
• Valid for a short period (often a few weeks), as it’s based on unverified information.
• Pre-Approval:
• Typically valid for 60 to 90 days, depending on the lender.

Which One Should You Get?

• If you are just starting your home search, pre-qualification is a good initial step to understand your financial standing.
• When you’re ready to start making offers, you should get a pre-approval, as it strengthens your position as a buyer.

Overall, while pre-qualification is a helpful step to get an idea of your budget, pre-approval is what you’ll need to seriously move forward in the home-buying process.

For further insights and updates, connect with us here at Revilo Real Estate and follow me on Instagram, Facebook and LinkedIn.