Pre-Qualification Versus Pre-Approval: Are They Worth It and What are the Differences?

Estimated reading time: 2.5 minutes

While pre-qualification and pre-approval sound interchangeable, they have different advantages. Both terms relate to your mortgage preparedness, but one gives you a larger advantage when buying a home. Whether you’re a first-time homebuyer or a seasoned investor, knowing the differences between these terms can help you have a smooth mortgage process!

What is Pre-Qualification?

Pre-qualification is a process that provides a strong indication of whether a lender could approve you for a mortgage, how much money you could borrow, and what products you may be eligible for if you formally applied. Receiving a pre-qualification from a lender is not a commitment to use the lender.

Is Getting Pre-Qualified Worth It?

Pre-qualification is a relatively quick process that can provide an estimate on how much you may be eligible to borrow for a mortgage. In the early stages of homebuying, you can use this information to create a budget.

In most cases, a pre-qualification doesn’t require a hard pull on your credit.

What is Pre-Approval?

Pre-approval provides a more thorough and precise look at your mortgage readiness than pre-qualification. Essentially, it provides written proof from a mortgage lender that you have the financial means to qualify and pay back the loan you’ve applied for. Your Loan Originator and their underwriting team will conduct a thorough financial review to verify your conditional approval.

Is Getting Pre-Approved Worth It?

You and your Real Estate Agent will know exactly what you can afford before you begin house hunting, allowing you to tailor your search with a price point that works for you. When it’s time to make an offer, you can show your pre-approval letter to home sellers, helping to demonstrate that you’re a serious buyer and on the track for full approval. You may only be subject to contracts and an appraisal. Additionally, because your file has already been underwritten, this conditional approval speeds up the final mortgage underwriting process.

What Credit Checks are Required?

Pre-qualification may only require a soft credit pull after you have provided some financial information, but a soft pull doesn’t affect your overall credit score. As pre-approval requires a detailed look at your financial information, your lender will perform a hard credit pull that reflects as a credit inquiry on your credit report. Additionally, they may examine your tax returns, bank statements, w-2’s, and pay stubs. All this financial information assists your lender in determining exactly how much money they may lend you and at what interest rate.

Here For Your Home Financing Needs

From the moment you start the pre-qualification or pre-approval process until closing, a Licensed Loan Originator will be by your side to help you through the mortgage process! Contact us today to learn what you qualify for and begin the steps to reaching your home financing goals.