Mortgage pre-approval vs. pre-qualification: What’s the difference?

What’s the first step to buying a home? If you said browsing listings online or stopping by open houses, you may want to take a step back. 

Before you start looking at homes, you should apply to get pre-approved or pre-qualified for a mortgage. You can skip this step, but that would be kind of like going shopping and leaving your wallet at home.

A mortgage pre-approval or pre-qualification will help you figure out how much home you can actually afford, so you can house hunt with confidence and make an offer fast when you find the right place.

Now you know the importance of a mortgage pre-approval or pre-qualification — but what exactly is the difference? We’ve broken it all down for you below.

What’s mortgage pre-qualification?

A mortgage pre-qualification is a free estimate of how much you may be able to borrow for your house. Your lender will ask for some initial financial information and perform a credit check, then give you a general price range of how much home you can afford.

Why should I get pre-qualified for a mortgage?

• You’ll find out if you can afford to buy a home.
• You’ll get a ballpark estimate of how much you can borrow.
• You’ll be able to estimate your monthly mortgage payment, along with the loan term and interest rate.
• You’ll save time on your home search by focusing on properties you can likely afford.

When should I get pre-qualified?

It’s best to get pre-qualified before you start your home search.

How do I get pre-qualified?

Depending on your lender, you can apply online, by phone or in person.

What do I need to prepare before meeting with a lender?

Be prepared to answer a few questions:

• Is your credit in good standing?
• What’s your annual income?
• How much outstanding debt do you have?
• Do you have steady employment?

How much does pre-qualification cost and how long does it take?

It’s usually free and can be done the same day.

What will be included in my pre-qualification letter?

It will include the mortgage amount you may be qualified for and the terms of the loan, such as the interest rate and monthly payments.

What is mortgage pre-approval?

A mortgage pre-approval will tell you if you’re approved for a mortgage and exactly how much you can borrow to buy your home. It’s a firm commitment in writing from your lender, as long as your property appraisal and title insurance checks out.

Why should I get pre-approved for a mortgage?

• You’ll know exactly what you can afford and the terms of a mortgage you’re approved to borrow.
• Your offer may be taken more seriously by a seller.
• You may be able to close on your home loan faster.

When should I get pre-approved?

It’s best to get pre-approved before you make an offer on a home.

How do I get pre-approved?

Depending on your lender, you can apply online, by phone or in person.

What do I need to prepare before meeting with a lender?

You’ll need to bring along a few documents:

• A completed mortgage application
• Two to three months of bank statements
• Two to three months of pay stubs
• Two years of W2 forms
• Two years of tax returns

How much does it cost and how long does it take?

It’s usually free and can take a week or more.

What will be included in my mortgage pre-approval letter?

It will include the mortgage amount you’re approved for and the terms of the loan, such as the interest rate and monthly payments.

The bottom line

Both pre-qualification and pre-approval are a good first step on your homebuying journey. But which is the right move for you?

• If you’re a first-time buyer or just starting your home search, getting pre-qualified can give you a better idea of what homes you can afford.
• If you’re getting serious about buying or already have a home in mind, you’ll want to get pre-approved soon, so you’ll be ready to make an offer on that perfect place.

If you’re ready to take the first step, our mortgage bankers can help you get started. Call us at 1-888-482-3781 to learn more or start your pre-qualification today.