The Difference Between a Pre-Approved Mortgage and Pre-Qualification (and Why It Matters)
Knowing the difference will help you move through the mortgage process a lot smoother.
Credit: Trong Nguyen / Shutterstock
When embarking on the journey to homeownership, you'll likely encounter the terms "pre-qualified" and "pre-approved" as they relate to a mortgage. While these phrases may sound interchangeable, they represent distinct stages in the mortgage process, and understanding the difference between them can significantly smooth your path to securing a home loan.
What is mortgage pre-qualification?
Pre-qualification is typically the first step in the mortgage process. It provides a general idea of how much you might be able to borrow based on basic financial information you provide to a lender. This process usually involves:
Sharing basic financial details with a lender
A quick review of your financial situation
An estimate of the loan amount you may qualify for
The pre-qualification process is usually quick and can often be done online or over the phone. It's important to note that pre-qualification doesn't involve a thorough examination of your financial history or credit score.
What is mortgage pre-approval?
Pre-approval, on the other hand, is a more rigorous process that results in a conditional commitment from a lender to provide you with a specific loan amount. The pre-approval process typically involves:
Completing a mortgage application
Providing detailed financial documentation
A thorough credit check
Verification of your income, assets, and debts
After reviewing this information, the lender will provide a pre-approval letter stating the specific loan amount they're willing to offer, subject to certain conditions.
Key differences between pre-qualification and pre-approval
Here are a few things that separate pre-approval from pre-qualification, and why pre-approval is the more significant checkpoint to remember:
Depth of financial review: Pre-qualification involves a surface-level review, while pre-approval requires a comprehensive examination of your finances
Credit check: Pre-qualification usually doesn't require a credit check, whereas pre-approval does
Documentation: Pre-qualification often relies on self-reported information, while pre-approval requires extensive documentation
Accuracy: Pre-approval provides a more accurate picture of what you can afford and the terms you'll likely receive
Weight with sellers: A pre-approval letter carries more weight with sellers, as it demonstrates you're a serious buyer who can likely secure financing
Why it matters
Understanding the difference between pre-qualification and pre-approval is crucial for setting realistic expectations. Pre-qualification gives you a ballpark figure, but pre-approval provides a more accurate budget for your home search. Plus, in competitive markets, a pre-approval letter can make your offer more attractive to sellers. It can also streamline the buying process, since being pre-approved can speed up the final loan approval process once you've found a home. Finally, the pre-approval process is prime time to uncover any problems with your credit or finances early on, giving you time to address them.
The bottom line is that while pre-qualification can be a useful first step in understanding your potential borrowing power, pre-approval is a more significant milestone in the home buying process. By obtaining a pre-approval, you'll be better positioned to make a strong offer on a home and move forward with confidence in your home buying journey.
Meredith Dietz
Senior Finance Writer
Meredith Dietz is Lifehacker’s Senior Finance Writer. She earned her bachelor’s degree in English and Communications from Northeastern University, where she graduated as valedictorian of her college. She grew up waitressing in her family restaurant in Wilmington, DE and worked at Hasbro Games, where she wrote rules for new games. Previously, she worked in the non-profit space as a Leadership Resident with the Harpswell Foundation in Phnom Penh, Cambodia; later, she was a travel coordinator for a study abroad program that traced the rise of fascist propaganda across Western Europe.
Since then, Meredith has been driven to make personal finance accessible and address taboos of talking openly about money, including debt, investing, and saving for retirement. Outside of finance writing, Meredith is a marathon runner and stand-up comedian who has been a regular contributor to The Onion and Reductress. Meredith lives in Brooklyn, NY.