Which Is Better, Pre-approval or Pre-qualification?

Understanding the difference between mortgage pre-qualification and pre-approval is crucial for potential homebuyers. Both processes serve to assess your eligibility for a mortgage loan, but they differ in their implications and depth. In this blog we will cover the key aspects of both options.

What is Pre-qualification?

Mortgage Pre-qualification is an initial assessment where a lender gives you an estimate of the loan amount you might qualify for. This process involves a basic evaluation of your financial information, such as your income, assets, and debts, without a thorough review of your credit report. Pre-qualification is typically done online or over the phone, and it doesn't usually require extensive paperwork. Since it is based on self-reported data, pre-qualification provides a general idea of your borrowing power but doesn't guarantee loan approval​. Pre-qualification is not as valuable as a pre-approval.

What is Pre-approval?

Pre-approval, on the other hand, is a more thorough process. You’ll need to fill out a formal application and provide detailed financial documents. The lender will perform a hard credit check, which can impact your credit score. Pre-approval results in a conditional commitment from the lender for a specific loan amount, giving you a clearer picture of your purchasing power and often making you a more attractive buyer to sellers. When submitting an offer to buy a home, your Realtor will often include the pre-approval letter from your lender. This makes your offer seem much more serious to the sellers.

To summarize, pre-qualification is a more basic assessment of your income, assets, and debt. It is less formal and accurate than a pre-approval and it serves as a guideline for what kind of loans who should be able to qualify for. A pre-approval results in a hard credit check, and has a more in depth review of tax returns, income, bank statements, and credit. A pre-approval is what you really want if you are a serious buyer.

Contact Locations, Inc. to learn more about pre-approvals, or to start your next real estate journey!