Mortgage application pre-qualification vs. pre-approval

Miranda Marquit
by Miranda Marquit, Contributor

During the mortgage application process, you will undoubtedly hear the terms “pre-qualification” and “pre-approval.” Both of these processes are a way of giving you an idea of how big a mortgage you can get ― but they are quite different when it comes down to the essentials. Before you begin a mortgage application, it is a good idea to understand the difference between pre-qualification and pre-approval.

Mortgage Pre-Qualification

A mortgage pre-qualification takes place when you go to a lender and express interest in a mortgage application. You must provide information about your credit score, your debt obligations, your income, and other items related to your overall financial situation. The mortgage lender then uses that information to offer you an estimate of your mortgage amount, as well as what interest rate you are likely to get.

Note that the mortgage lender does not actually start the mortgage application process at this time and will not examine your finances too closely. A pre-qualification is typically free of cost and takes very little time. However, it is not “official” in any way and doesn’t guarantee that you will get a loan. While it can be helpful during the “shopping around” stage of your mortgage application process, a pre-qualification does not carry much weight with sellers or real estate agents.

Mortgage Pre-Approval

For something a little stronger, you need mortgage pre-approval. Pre-approval goes a step further (than pre-qualification) in the mortgage application process. You may have to pay an application fee, or pay for the mortgage lender to pull your credit report. The mortgage lender delves deeper into your financial situation so they can more accurately pinpoint the loan you can get. You might even be able to lock in an interest rate.

If all goes well, the mortgage lender will issue you a Pre-Approval Letter. An official pre-approval gives you a little more credibility while you are house hunting. This part of the mortgage application process lets sellers and real estate agents know you are a serious buyer. It also provides a certain degree of proof that you are looking at homes you can actually afford.

However, it is important to realize that mortgage pre-approval is not final loan approval ― the home loan can still fall through even after pre-approval. It is important to keep your credit in good shape after obtaining a pre-approval letter. You should also be careful about how you use your money, since these can be grounds for a sudden and disappointing end to your mortgage application. However, if you go through pre-approval as part of the mortgage application process, you will find that you are less likely to have unpleasant surprises down the road.