Deciphering the Difference Between Pre-Approval and Pre-Qualification

Deciphering the Difference Between Pre-Approval and Pre-Qualification

Pre-Approval and Pre-Qualification

The home buying process is packed with steps that often feel confusing or foreign to first-time buyers. Acronyms fly around without explanation, and somehow, even definitions may leave your mind boggled. Two terms you’ll hear as you begin your home shopping experience are pre-qualified and pre-approved. These aren’t synonyms. In fact, each has a very distinct meaning and a clear purpose in the overall buying process.

One way to remember which comes first is to think about applying for a new job. A candidate must be qualified for the role before getting approved as the new hire. So, homebuyers should start with pre-qualification.


A pre-qualification is basically an estimate of the amount of mortgage you can afford. You provide basic financial information to a lender, such as how much money you earn, how many debts you have and your credit score, and the lender provides an estimated amount you can borrow. This feedback helps buyers begin to understand the type of interest rates they would be offered and the estimated cost of the monthly mortgage payment.

The pre-qualification is not official because the lender has not verified any of the financial records. They haven’t pulled your credit report, reviewed your banks statements or required pay stubs to confirm your income. The pre-qualification is an estimated starting point for buyers.

Rather than work with a lender, buyers can estimate their affordability with a free calculation. Plus, they can use the mortgage calculator to determine the monthly payment for homes at different price points.

Pre-Approved Yet


A pre-approval goes a step further; this one is official. Homebuyers must contact a lender for pre-approval, or fill out the appropriate forms for a lender to electronically provide pre-approval. The final product of the process is a pre-approval letter. Buyers can include this letter when bidding on homes to sweeten their offers as credible buyers. When buyers have pre-approval letters their closing processes should be faster than buyers without letters, because lenders already have a significant amount of the required financial records and are still approving the given loan sum.

For pre-approval, lenders pull your credit report and review your finances, debts and income. The resulting letter determines the official amount of loan the lender will offer. If the rate and loan amount seem on par with the sum buyers were hoping for, then the pre-approval will be valid for 90 days. Some lenders have other specific guidelines, but 90 days is the standard. If the loan amount is lower than buyers were anticipating, it’s a good indication that they should wait to buy while improving credit scores, paying off debts or gaining longer-term, higher-paying employment.

Alternatively, not all lenders provide the same pre-approval amount. Just because you have a pre-approval letter from one lender does not mean you’re committed to working with that lender on a home purchase.

Additionally, loan pre-approval does not guarantee loan approval once you find a home you’re ready to purchase. When a seller accepts your offer, the underwriter must review further financial and home details before approving the loan. The pre-approval also does not lock your rate with that lender. Once your offer is accepted by the seller, you’ll have a window to lock a rate during the closing process.

Although these two terms are similar by name and by function, the pre-qualification is mostly for buyers’ initial affordability planning, while pre-approval is the legitimate step that can help with negotiating and expediting the purchase process.

Buyers who get a pre-approval are telling their agent they are serious about purchasing a home. All things being equal, listing agents will confer with their sellers and give a lot more credibility to an offer that comes in with a pre-approval over a pre-qualification letter. If you are serious about buying, take the serious step forward, and ensure you are able to get the home of your dreams when the time comes.

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