Mortgage Pre-Approval vs. Pre-Qualification

When you decide to buy a home, you’ll have to go through an extensive lending process. For many homebuyers, this can be unfamiliar territory, leaving you with questions about the difference between mortgage pre-approval vs. pre-qualification. 

But this work is important because the approval process will help you and your lender determine your ideal price range. Here’s what you need to know about the pre-approval process and how it differs from pre-qualification. 

Technically speaking, mortgage pre-approval and mortgage pre-qualification are both types of mortgage approval. In fact, it’s not unusual to hear some lenders use the terms interchangeably. 

But the main difference is that during the pre-approval process, your mortgage lender will perform a fairly deep dive into your financial information to assess your overall situation. 

The pre-approval process looks different from lender to lender. Typically, you’ll need to submit a formal loan application and provide details such as: 

• Your household income 
• Your savings 
• Your existing debt (e.g., credit cards or student loans) 
• Your personal credit score 

To accomplish this, you’ll typically need to present tax returns from the past two years, as well as bank statements, pay stubs, and other documentation. The lender will evaluate this information to determine the type of loan you can receive as well as the interest rate and terms. 

This process is usually quite fast, and many homebuyers receive a pre-approval letter in a matter of days. However, your loan terms are not official just yet. 

Pre-approval won’t become official until your loan goes through underwriting and receives final approval from the lender. It’s not uncommon for lenders to adjust loan terms if there are errors or discrepancies in your financial data. 

Your mortgage pre-approval letter will only be valid for 30 to 90 days. After this window closes, your pre-approval will expire. Keep in mind that the exact terms can vary between lenders, so if you’re concerned about a potentially narrow window of pre-approval, ask the lender before entering into the process. 

But time isn’t the only thing that can affect your pre-approval letter. Other things can alter the terms of your initial approval, including: 

• Major changes in your income or debts 
• Changing jobs 
• Altering your investments 
• Depleting your savings 

For most homebuyers, this means that you may want to wait to obtain pre-approval until you’re ready to commit to the process of finding a home. 

What, then, is the difference between pre-approval vs. Pre-qualification? The pre-qualification process is usually much simpler and doesn’t require any sort of formal application or even a credit check. 

Instead, homebuyers can receive a quick response from the lender, which gives them a general estimate of how much they may be eligible to borrow. 

In this case, “may” is very much the operating term. This initial approval doesn’t carry the same weight as a viable approval and can’t be used to make an official offer on a home. If you do find a home after pre-qualifying, you’ll need to go through the pre-approval process before the seller takes you seriously. 

This reality is why you might consider pre-approval vs. Pre-qualification alone. Still, pre-qualification gives you a quick snapshot of your finances and can be a great start in the house-hunting process. 

Since mortgage pre-qualification is a general estimate, it doesn’t have a formal expiration date like other types of communication with your lender. Remember: pre-qualification doesn’t enable you to make an offer on a home, nor can it be used in any formal way to secure actual financing. 

Pre-qualification should therefore be thought of as a quick snapshot, highlighting your financial situation at the present moment in time. To keep moving through the lending process, you’ll need to move on to the pre-approval process, which will involve a deeper evaluation of your credit history, finances, and other information. 

In other words, pre-qualification is mainly a tool to help homebuyers and lenders gain a quick understanding of their financial prospects. 

Suppose that you pre-qualify for a particular loan amount. In that case, you can think of this pre-qualification lasting only for a short duration, and even a month’s pause in your house hunting adventure might require you to get pre-qualified again to ensure you’re searching with the right information. 

A mortgage pre-approval involves a hard credit inquiry, which typically reduces your credit score. Fortunately, this credit check will only cause your score to dip by five points or so, but it’s still a factor to consider. 

This check also means that you don’t want to let your pre-approval letter expire since expiration means that reapplying will lower your credit score even further. 

Similarly, you may want to limit the number of lenders you apply to when seeking pre-approval. It’s always good to apply to around three different mortgage lenders so that you can compare rates and terms, but make sure to factor in the hit you’ll receive on your personal credit. 

Pre-qualification doesn’t involve a hard credit inquiry. Therefore, it has no impact on your personal credit score. Still, make sure to check with your lender before seeking pre-qualification, as some lenders will use the terms pre-approval and pre-qualification interchangeably. 

There are many times when homeowners need to seek official pre-approval vs. Pre-qualification alone. Pre-qualification is good for one simple reason: it gives you a general idea of your price range when you first start searching for a home. 

But pre-qualification can also be limiting, as it can’t be used to make an offer or even to show sellers that you’re serious about a purchase. Pre-approval is the better alternative under the following conditions: 

• When you’re ready to buy a home 
• When the real estate market is hot 
• When you don’t expect your financial situation to change 

Offering to buy a home is a major step, but pre-approval can be a way to wade into the water and proceed with the best possible information. 

You won’t move on from pre-approval until you finally find your dream home. After submitting your offer to the bank for consideration, the property will be appraised and inspected. 

If your lender is satisfied, it can proceed to final underwriting and approve your loan. Being pre-approved usually helps the process move more smoothly since your financial information has already been submitted and reviewed.