I am a Home Buyer. What’s the difference between a Pre-Qualification and Pre-Approval?


Real Estate Home

If you have started the home purchasing process, then you have probably begun speaking to your local bank or your current financial institution. You may have even come across the terms “pre-approval” and “pre-qualification” of a mortgage. Many will argue and tell you that it is the same thing. But as a Real Estate Professional, I can assure you that it is NOT the same thing. Although terminology may vary from lender to lender, there are two different ways of getting the “letter” that Real Estate Agents/REALTORS® ask for.

Here is the Difference between a Pre-Qualification and a Pre-Approval of a Mortgage

Pre-Qualification Let’s suppose for the sake of this explanation, that you went to your bank or current financial institution. You asked to speak to a Mortgage loan officer and your conversation went something like this:

  • You:  Hello Mr Bank officer. I have begun searching for homes online and my Real Estate Agent is asking me for a letter in order to go out and see the houses. Can you provide that letter to me?
  • Bank:  Hello Mr. Customer. I can certainly do that for you. I will just need to ask you some simple questions in order to get the letter ready for you. Is that ok?
  • You:  Yes, of course!
  • Bank:  I am going to need to know if you are currently employed, how much you currently make, if you are applying alone, how much you made last year, and what price range you are thinking of shopping for?
  • You:  Oh that’s simple enough. Yes I am currently employed, I make $75,000 a year, I will be applying with my wife, we made $125,000 last year, and we were thinking of buying a home in the $300,000 price range.
  • Bank:  Perfect. I have all the information I need!

prequal vs preapproval

As you continue your appointment with the bank or loan officer, he types up a letter, prints it, and advises you that you are good to go with that letter. That if the Real Estate Agent/REALTOR® needs anything else, they can contact him directly. Now does this sound like a real verification or qualification for a home mortgage to you? As you can see in the above example, everything was done verbally and the “pre-qualification” letter was written based on what was verbally discussed, nothing was verified. This is why this is called a “pre-qualification” letter. It is not an official interpretation of your financial circumstance or a valid letter demonstrating your true buying power.

Pre-Approval As in the above example, let’s suppose you also went to your local bank or financial institution. When you asked to speak to a Mortgage loan officer, your appointment went something like this:

  • You:  Hello Mr Bank officer. I have begun searching for homes online and my Real Estate Agent is asking me for a letter in order to go out and see the houses. Can you provide that letter to me?
  • Bank:  Hello Mr Customer. In order to get the “pre-approval” process started I must begin by letting you know it does require you filling out a mortgage loan application either here or online. The application will ask you questions like: names of those applying, employment history, income of those applying, current living arrangements, among other questions. You will also need to provide pay stubs, past W2’s or income tax returns, current bank statements, etc. The process will seem a little intrusive in your personal and financial life, but it is needed in order to determine how much you are able to qualify for based on your financial circumstance.
  • You:  Oh wow! I had no idea all that was needed.
  • Bank:  It can be a cumbersome process but I can assure you, once the application is submitted and all required documents are provided, you should get a response from us rather quickly. The response will let you know if you are qualified to purchase, how much your are qualified for, the terms of the “pre-approval”, and the next steps needed to approve the loan.

In the above example, you were able to see that it is not just a verbal verification that is needed to receive a “pre-approval” letter from a lender. A mortgage application must be filled out and required documents must be provided so that the lender can determine if you are pre-approved to buy a home.

I hope this post was able to clarify the difference between a mortgage pre-qualification and a pre-approval. If you are interested in seeing another excellent article outlining the differences, check out this article posted in realtor.com: Does Your Mortgage Pre-Approval Hold Water?

Do you have any questions or comments? Please let me know!


About Erika Lewis

Mother, Wife, Blogger, REALTOR® & Real Estate Professional in Atlanta. Allow me to connect you with a Top REALTOR®/Real Estate Agent in your local market. Contact me today! [email protected]