Pre-Approval vs. Pre-Qualification: Know the Difference When Buying a Home

Before you start looking for your dream home, it’s important to understand the mortgage process. Two terms you'll see when looking for a mortgage are pre-qualification and pre-approval. They might sound similar but have very different roles in your home-buying journey.

What is “pre-qualification”?

Think of pre-qualification as a preliminary assessment. It's a fast and easy way to get a general idea of how much you might be able to borrow for a mortgage that doesn’t impact your credit score. You’ll provide your lender with some basic details about your finances, like income, employment, and estimated debt. Based on this information, you’ll receive a rough estimate of how much you can borrow.

Keep in mind that because getting pre-qualified is just a way to see how much you could afford. Your information won’t be verified at this stage, and you won’t receive a written promise of how much you can borrow.

Although getting pre-qualified doesn’t confirm how much you really can borrow, it’s an important step of the homebuying process because it can help you narrow down your home search based on what you can afford.

What is “pre-approval”?

When you’re ready to purchase your home, pre-approval is the real deal. You’ll receive a letter from your lender that says how much you can borrow at a certain interest rate and shows a more committed step towards securing your mortgage. This can give you an advantage over other buyers and strengthen your offer when you’re ready to buy a home.

To get pre-approved, you’ll need to submit documentation including pay stubs, tax returns, bank statements, and proof of employment. The lender will verify all your information and pull your credit to assess your ability to repay the loan. Once this information is verified, you'll receive a pre-approval letter that states the maximum loan amount you're eligible for.

It's important to remember that this is not a final decision for your mortgage amount, and you still need to go through the full application and underwriting process before you can close on your loan. The final amount you’ll be allowed to borrow is subject to verification and appraisal of the home you want to buy.

Pre-qualification and pre-approval are both great ways to get an estimate of how much you can borrow for a home. While pre-qualification is a great way to give you a starting point when searching for a home, pre-approval will help you take the next step and give you an advantage over other buyers when you’re ready to purchase. By working with your lender and shopping around for the right home in your budget, you’ll be able to secure the best possible deal. Happy house hunting!