What’s the Difference Between Mortgage Pre-Approval and Pre-Qualification?

Trisha Miller  | 

Although the terms “pre-qualification” and “pre-approval” may sound very similar, they do refer to two different processes. However, both processes can help you get approved for a mortgage. If you’re thinking about purchasing a house in the near future, it’s important to become knowledgeable about these terms and how these separate processes can help you in your home search.

What Is Mortgage Pre-Qualification?

Pre-qualification is a process in which you have a conversation with your lender to determine your homeownership needs. In addition, your lender will take a look at all of your assets versus debts and determine what size of loan you can afford.

During pre-qualification, your bank or lender will not run your credit score. This process does not set up a new loan for you. This is simply to help you and the lender become comfortable with some possible terms that could arise from a new loan. You can explain exactly what you’re looking for in a home and the lender will tell you if that is within the realm of possibility according to your current income and debts.

What Is Mortgage Pre-Approval?

Pre-approval is the actual process of being approved for a home loan. Your lender will run your credit score and enter all of your financial information into their system. They will come up with a more exact loan number, duration, and monthly payment that you are both comfortable with. Essentially, your bank is telling you that if you choose to make an offer soon after pre-approval, your loan will be accepted through their financial institution.

This process is usually completed just before you’re ready to put an offer down on a home. Most likely, if you’re applying for pre-approval, you’ve been looking at houses already, you know what you want out of a home, and you know how much you’d like to spend. Pre-approval will give you the confidence to put an offer on a home and know that the bank will approve the offer as long as it stays within the parameters that you discussed.

Mortgage pre-approval is the last step that you need to take before an actual loan is created. After you put an offer on a home and it is accepted by the seller, the lender will draw up your mortgage contract and you’ll set a date to close on the home.

Which Do You Really Need?

If your bank is able to provide you with both services, it’s not a bad idea to think about pre-qualification and pre-approval. Pre-qualification is a great first step for someone who is new to the home buying world. On your first home, you may have no idea what to expect or what you could potentially be approved for.

Although pre-qualification won’t be as pinpoint accurate as pre-approval, it’s still going to be in the ballpark that you’re looking for. You’ll know what range of homes to take a look at and what your finances could look like after you’re approved for a mortgage. Pre-qualification is a smart idea for those looking to take their time purchasing a home and it will help put things into perspective before you start shopping.

Expedite Your Home Search With Pre-Approval

If you’ve purchased a home previously, you may already know the drill. You might want to go right into the pre-approval process so that you can quickly put an offer down on a home. You might be pretty confident about how much you have to spend and what type of home you need. For those who are looking to buy something fast, pre-approval is never a bad way to go. You’ll still be made aware of exactly where your finances stand and what you can be approved for.

Protect Your Credit With Pre-Qualification

However, in the pre-approval process, your credit is checked. So, you should plan on being pre-approved only once or twice in a short period of time. If the bank isn’t comfortable approving you for a loan, you could be denied until you’re able to get your income, credit score, and/or debt within the desired range. With that being said, if you’re not sure what the bank will say about your current financial status, it might be a good idea to ask for pre-qualification first.

What’s more, if it’s been several years since you’ve purchased a home, the market may have drastically changed since you last purchased a house. Even if you were approved for a certain loan years ago, that doesn’t mean that you can be approved for the same loan today. Your financial status might have changed and the price of homes may have changed as well.

In this case, it is advisable that you start with pre-qualification first. This way, you can find out if you’ll be approved for the mortgage you want, without having to run your credit or start the more involved process of pre-approval first.

Maximize Your Options: Get Both

The long and short of it is, you should do both if you have the time. It’s always a good idea to talk with your lender about your expectations versus what they think would be best for you and your mortgage.

However, pre-approval is essential when you’re thinking of putting an offer on a home quickly. You absolutely need to at least be pre-approved before you decide on any one particular home. Without pre-approval you’re taking a shot in the dark at whether the bank will even accept the terms of the loan you’re looking for.

In order to confidently shop for a home, consider taking the time to be pre-qualified and pre-approved. You won’t regret it when you land the house that you truly want.


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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.