What is the difference between Pre Qualification and Pre Approval?

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Difference Between Pre Qualification and Pre Approval


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When you start to look for a new home, the real estate agent may ask if you have been pre-qualified or pre-approved for a mortgage. This is the real estate agent's way of making sure you know what you can afford.

A pre-qualification is generally informal. The mortgage lender will ask you a number of questions about your income, how much debt you have and how much money you have saved. With this information, the lender will calculate the amount you can afford. When the pre-qualification is finished, the lender will issue a letter stating the amount for which you have been pre-qualified.

Pre-approval is a more rigorous version of pre-qualification. After the lender asks you questions about your savings, income and debt, he or she will verify the answers you have provided by running a credit report, calling your employer and contacting your bank. The pre-approval is a verified pre-qualification.

Sellers and real estate agents prefer pre-approvals to pre-qualifications because your information has been verified, making you a more serious and credible buyer.