The Difference Between Pre- Approval and Pre- Qualification

You’ve finally decided that you’re ready to take the plunge and purchase a home. Congratulations! This is a huge milestone. Once you begin your search, you will quickly realize that there are a ton of moving parts and paperwork involved in the home buying process. Two terms that you will hear a lot during this process are pre-approval and pre-qualification. It’s important to understand the difference between these two terms so that you can be as prepared as possible when applying for a loan.

Pre-Qualification

Pre-qualification is when a lender gives you an estimate of how much money you would likely be approved for if you applied for a loan. In order to get pre-qualified, you will need to provide the lender with information about your employment, income, debts, and assets. The lender will then use this information—along with other factors—to give you an estimate of how much money they would be willing lend you if you were to apply for a loan.

While pre-qualification can be helpful in giving you an idea of how much money you might be able to borrow, it’s important to keep in mind that this is just an estimate. The actual amount of money that you are approved for could end up being more or less than what was estimated during the pre-qualification process.

Pre-Approval

Pre-approval is when a lender gives you the green light to borrow up to a certain amount of money. In order to get pre-approved, you will need to fill out a mortgage application and provide the lender with information about your employment, income, debts, and assets. The lender will then review your information and let you know how much money you are approved to borrow.

One of the main advantages of getting pre-approved is that it will let you know exactly how much money you have to work with when searching for a home. This can help you narrow down your search to homes that fit within your budget. Additionally, having a pre-approval letter in hand sends a strong signal to sellers that you are serious about buying their home and that they don’t need to worry about whether or not you will be able to secure financing.

If you are planning on applying for a loan to purchase a home, it’s important to understand the difference between pre-approval and pre-qualification. Pre-approval is when a lender gives you the green light to borrow up to a certain amount of money while pre-qualification is when a lender gives you an estimate of how much money they would be willing lend you if were applying for a loan. Both processes require the lender to review your employment, income, debts, and assets but getting pre-approved provides buyers with greater clarity and assurance when searching for their dream home.