Pre-qualified vs. pre-approved: What’s the difference?
Pre-qualification and pre-approval are two terms you may hear used interchangeably when shopping for a mortgage, but they are actually two optional steps you can take to start the loan approval process. A mortgage pre-qualification is usually a much shorter process that requires you to honestly report your own financial information, while a mortgage pre-approval typically requires you to submit more documentation like W-2s to verify your income and assets — making it a lengthier process.
Neither pre-qualification nor pre-approval will guarantee you a loan, but getting pre-qualified or pre-approved before you start searching for a home can help you more easily find a home you love within your budget. A pre-approval may also make the process of completing a full loan application much easier and faster, because you’ll already have submitted a lot of necessary information to the lender.
While both pre-qualification and pre-approval from a lender help identify your price range, a pre-approval letter can signal to your real estate agent and sellers that you’re serious about buying a home. Agents often require a pre-approval letter, because it is a strong indication that you are a qualified buyer and can make a competitive offer.
What does pre-qualified mean?
Pre-qualification means you may satisfy a lender’s general criteria for a mortgage, based on your self-reported financial information like income, assets, credit and debt. Pre-qualification can be as simple as a short phone conversation with a lender. Afterward, the lender may or may not provide you with a letter detailing the types of loans you may qualify for and the loan amount you may be able to borrow.
Pre-qualification is just a starting point. According to a Zillow survey, about a quarter of prospective buyers who have not yet started working with an agent reported getting pre-qualified (27%).
If you’re unsure where to begin in your home buying journey, or aren’t even sure what homes you can afford, start the pre-qualification process to learn more about your loan eligibility.
Keep in mind, a mortgage pre-qualification is only as accurate as the information you provide the lender. That’s why those who are ready to buy in the near future often go straight to pre-approval, which is a more comprehensive verification process.
What does pre-approved mean?
A mortgage pre-approval means you have a conditional commitment from a lender to approve you for a loan as long as you continue to meet their conditions by the time you close on the home. You’ll need to provide the lender with documents like bank statements, W2s and pay stubs. The lender will also run a credit check, which may show as a soft or hard inquiry on your credit report, depending on the lender’s pre-approval process.
Once pre-approved, you’ll receive a pre-approval letter detailing the loan amount, types of loan programs you may qualify for (e.g., conventional, FHA, VA), an estimated interest rate and annual percentage rate. Assuming you continue to meet the lender’s financial loan qualifications during the underwriting process, your lender will be able to issue a final loan approval. You will still have to complete a loan application before being fully approved for a specific loan program.
A pre-approval letter accompanying your purchase offer suggests to the seller that if they were to accept your offer, financing is more likely to go through than without one. Your offer becomes more compelling. According to Zillow’s Consumer Housing Trends Report 2022, 85% of sellers say that they prefer to accept an offer from a buyer that is pre-approved.
Difference between pre-approved and pre-qualified
A pre-qualification can help you prepare to take the next steps towards buying a home and give you a sense of a reasonable budget to stay within when shopping for home. A pre-approval gives you a more concrete understanding of your budget, so you can start making offers and can signal to the seller that you are a serious buyer. Here are a few more key comparisons between pre-approval and pre-qualification.