Applying for mortgages while getting ready to buy a new property comes with many questions. This is true for both first-time buyers and those who have already been through the process. One of the most common questions asked at the start of the process is, “what is pre-approval versus pre-qualification?”

Both pre-approvals and pre-qualifications are important to the home-buying process. But, there is one that carries more weight. There is often much confusion surrounding these two steps in the mortgage journey.

Related Articles You Might Like

Better Choice: Pre-Approval Versus Pre-Qualification?

Before we dive in…

What do you think about pre-approval versus pre-qualification? Which one would you think is the better choice? Keep reading to gain a better understanding of each and determine which one you may need.

What Is Pre-Qualification?

The best way to think about pre-qualification is as preparation or a practice test. During the pre-qualification, you provide a lender with a snapshot of your financials. It helps to determine your price range while highlighting areas that need work.

You can expect to offer them information about:

  • Income
  • Assets
  • Debt
  • Other aspects of your financial health

This is a quick process that takes place online or over the phone. The goal is to provide an estimate of how much you can receive from a lender. There is no in-depth analysis of credit or other financial statements. So, most pre-qualifications are available within a few days.

There is one very important thing to keep in mind when considering pre-approval versus pre-qualification. The pre-qualification is only as accurate as the information you provide. This means that pre-qualification is excellent for trying to determine your price range.

But, if the data you give to the lender is inaccurate or outdated, you may be unpleasantly surprised in the long run.

Pre-qualification is a way to prove your credit worthiness and an estimate of what you can borrow. Even though this is an estimate, many sellers won’t consider entering into a contract unless a buyer is pre-qualified.

Pre-Approval Versus Pre-Qualification (2)

What Is Pre-Approval?

Pre-approval is the natural next step after completing the pre-qualification. The pre-qualification process moves rather quickly. Pre-approval is much more involved and may take more time than expected. Completing a mortgage application is the main difference between pre-approvals and pre-qualifications.

During the pre-approval, lenders will take a very close look at your financial status. This means in-depth credit analysis, extensive financial background checks, and providing much more documentation.

After processing this information, a lender provides the pre-approval for a set amount. You will also get a better idea of your potential interest rate for your home loan.

The primary aspects of a pre-approval include:

  • Possible application fee
  • Completed mortgage application
  • Credit history check
  • Down payment estimate
  • Specific loan amount and interest rate information

A mortgage pre-approval helps to speed up the buying process. It lets potential sellers know that you are truly ready to buy a new home. This is especially helpful in today’s competitive market.

Pre-qualification and pre-approvals provide an estimate of how much house you can afford. Sellers are much more willing to further the process with a pre-approval compared to a pre-qualification.

Pre-Approval Versus Pre-Qualification: Which Is Better?

Getting pre-qualified and pre-approved involves two very different processes. Much of the information you provide is the same for each pre-step. However, the way your data is analyzed and interpreted is completely different. Simply stated, neither of these steps in the mortgage process is better than the other.

The one that is better for you depends on your goals.

If you are just getting ready to start looking at new homes, a pre-qualification won’t take too much time. Plus, it can give you an idea of what you can afford.

Getting pre-qualified can also identify areas within your financials that are lacking. For example, you may need to provide more data or improve your current situation.

Pre-approvals are better suited for those who are ready to buy. These potential buyers have already done a bit of searching and made up their minds that now is the time to move. This process takes longer and determines, with more certainty, your loan amount.

The Bottom Line: Pre-approval Versus Pre-qualification

It can never hurt to go through both of these processes as you move through your home-buying journey. Each of these makes your bid more attractive to sellers. They also make it easier to find a home that is within your price range.

As always, it’s best to reach out to a real estate professional, like myself. You want someone who can help you determine which application best meets your needs and also help you collect and submit the relevant information.