Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference?

For those who like to spend their time looking inside other people’s homes, or who list house-hunting as a hobby, there are home renovation and buying TV shows; for them, the only prerequisite is a subscription to cable.

Mortgage Pre-Qualification vs. Pre-Approval
Mortgage Pre-Qualification vs. Pre-Approval

For people serious about shopping for a new home, there’s a bit of paperwork—proof that you’re committed to purchasing a property.

Getting Started

That paperwork proof comes in the form of a pre-approval, which, if you’ve just begun the process, you’ve probably heard of. But there’s a good chance you’ve also heard the term “pre-qualification,” and you might be wondering what the difference is, or if a pre-qualification and pre-approval are interchangeable.

The short answer: they’re not. There is a difference, and the latter holds more water than the former, but each serves a purpose.

Mortgage Pre-Qualification

You can look at the pre-qualification as the very first step, the first official foray into home-ownership. It’s quite straightforward, and is used to ensure you can purchase a home. The pre-qualification will take a look at your assets, debt-to-income ratio, probable down payment amount, likely credit score, and employment.

A mortgage broker will collect this info from you, and will quickly and easily be able to tell you where you stand. However, that’s pretty much all it is; you’ll have a feel for what you’ll most likely qualify for and if you’re even ready to buy real estate, but it’s not the actual go-ahead. So why bother? If you’re not quite sure if you are ready or able to buy a home, this could be the determining factor, the “no way” vs. “go for it.”

Mortgage Pre-Approval

The real bread and butter, let’s-make-a-deal step comes in the form of the pre-approval, and it carries much more weight.

In this case, your broker will take a look at your actual credit report, pay stubs, employment documents, bank statements, and tax returns, and will have you fill out an application. Once this has been assessed, you’ll find out how much house you can afford (a.k.a. how much the bank is willing to lend you), and upon pre-approval, you’ll receive a letter from the lender, valid for 60-90 days, depending on the specific lender.

While the pre-approval is official, and makes real estate agents and sellers take you seriously, it is not 100% guaranteed. This means that if something changes significantly, such as losing your job or obtaining new debt, all bets may be off.

Moving Forward

Once you’ve got the pre-approval letter in hand, and you’ve made a conscious commitment to finding a new home (and not making any changes to your finances!), you’re ready to move from window shopper to serious buyer. You’ll have an actual number that states how much you can afford, and documented proof that your interest in house hunting goes beyond the realm of your remote control.

If you’re buying or selling a home in the Boston area and are in need of a mortgage, or have any mortgage-related questions, contact me at any time for advice or help.

Phil Ganz (117 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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