Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference?

When buying a home, cash is king, but most folks don’t have hundreds of thousands of dollars lying in the bank. Of course, that’s why obtaining a mortgage is such an important part of the process. And securing mortgage pre-qualification and pre-approval are important steps, assuring lenders that you’ll be able to afford payments.

However, pre-qualification and pre-approval are vastly different. How different? Read on to find out why one is better than the other in the long run.

What is mortgage pre-qualification?

Pre-qualification means that a lender has evaluated your credit and has decided that you probably will be eligible for a loan up to a certain amount.

However, the pre-qualification letter is an approximation, not a promise, based solely on the information you give the lender and its evaluation of your financial prospects.

A pre-qualification is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.

It can be helpful if you are completely unaware what your current financial position will support regarding a mortgage amount. It certainly helps if you are just beginning the process of looking to buy a house.

Why is mortgage pre-approval better?

A pre-approval letter is the real deal, a statement from a lender that you qualify for a specific mortgage amount based on an underwriter’s review of all of your financial information such as credit report, pay stubs, bank statement, salary, assets, and obligations.

Pre-approval should mean your loan is contingent only on the appraisal of the home you choose, providing that nothing changes in your financial picture before closing.

The reliability and simplicity of your offer stand out from other offers. And pre-approval can give you that reliability edge.

So take notice. While pre-qualification can be helpful in determining how much a lender is willing to give you, a pre-approval letter will make a stronger impression on sellers and let them know you have the cash to back up an offer.