The Difference Between Pre-Qualification and Pre-Approval Letters

In today’s home-buying environment, you’ll see terms like “pre-qualification” or “pre-approval.” These two phrases are often interchangeable by lenders, but there are significant differences between them. Understanding what they mean will help you to make an informed decision on the best path for your next mortgage.


Pre-Qualification

A pre-qualification is a more informal process where the borrower provides basic information about their income, assets and debt to a loan officer over the phone. This information is then used to determine an estimate of how much a lender might be willing to give them as a mortgage.

It can be helpful to get pre-qualified before a home search because it gives you a ballpark figure of how much you can afford. However, it is important to remember that a pre-qualification will not take into account other expenses, such as existing debt or living expenses.

Pre-Approval

A mortgage pre-approval is a more comprehensive process that includes submitting tax returns, financial documents and supporting documentation. The mortgage lender also runs a credit check to verify that the information you provided matches their criteria.

When you’re looking for a home, getting pre-approval is one of the most important steps in the mortgage process. It lets the seller know that you are a serious buyer and are prepared to close on their home.

It’s also a great way to speed up the mortgage process when you find your dream home. Once you’ve been approved, your mortgage expert will help you apply for a formal loan.

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