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What’s the Difference Between Pre-Qualified and Pre-Approved?

What’s the Difference Between Pre-Qualified and Pre-Approved?

Obtaining a mortgage is a process you want to be well-prepared for. Since there are various steps involved in this process, part of this preparation is ensuring you understand each one. 

A mistake often made by home buyers is assuming when a lender pre-qualifies them for a mortgage, it means they’ve been pre-approved for the loan. This is a mistake because, in fact, these terms are very different.

Skip the confusion and learn the difference between “pre-qualified” and “pre-approved” beforehand.

What it Means to be Pre-Qualified

As one of the initial steps in the mortgage process, you can look at pre-qualification as a sort of “first round”. In this first round, you’ll provide a lender with information on things like your income, debts, and current assets, so they have an overview of your financial standing. By evaluating this, the lender will be able to give you an idea of the loan amount you would qualify for. They may offer you suggestions for the type of mortgage that might fit your situation and can answer any questions you may have. 

However, this is generally a quick (and typically free) procedure, which is why it would only be the “first round,” requiring further evaluation down the line. The important thing to remember is that, for pre-qualification, a lender will not analyze your credit report. This means the loan amount they pre-qualify you for is not guaranteed to be the amount you actually get approved for after a lender has fully investigated your financial history. 

What’s Difference Between Pre-Qualified and Pre-Approved? House Model ImageWhat it Means to be Pre-Approved

Moving on to the next round, pre-approval is a much more in-depth step. You will fill out an official mortgage application (typically for a fee) and provide a lender with even more documentation. This is when a lender will perform a full investigation of your financial history, evaluating your credit report and current credit rating. 

After this is done, a lender will be able to give you an exact amount they’re willing to lend you. They’ll also be able to give you an idea of the interest rate you’ll likely be charged on the loan – sometimes, you’ll even be able to lock in a specific rate. 

What makes pre-approval significantly different from pre-qualification, too, is that pre-approval comes with a conditional, written commitment of the exact loan amount you were presented with.

Why You Should Take Both Steps

As you can tell, getting pre-qualified gives you an idea of the amount you can receive for a mortgage, while pre-approved secures a specific amount for you. With that being said, there are advantages to taking each step.

Starting by getting pre-qualified for a loan allows you to look at homes that fall into the price range you can comfortably afford. You won’t waste time on properties beyond your means or risk falling in love with a home you won’t actually be able to finance. 

When you’re getting serious about buying, it’s beneficial to be pre-approved for a loan. With pre-approval, you’re able to quickly close on a sale because it shows the seller that you’re financially prepared.

Once you have your heart set on a certain home, you can move into the final round – filling in the additional details to complete your mortgage application. Each step in the mortgage process is important but have very different outcomes. Take it slow and do your research ahead of time, before you get ahead of yourself.

Photo credits: signing contract, house model

About The Author

Jeff S.

Proud father and husband. Loves music, Nine Inch Nails, UFC and inbound marketing.

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