What is the Difference Between a Pre-Approval and Pre-Qualification?

Lenders and customers often use the two terms interchangeably. However, a true Pre-Approval puts a buyer at a much greater advantage in making an offer on a home. A Pre-Approval is granted from a lender after a full mortgage application is taken, a credit report is pulled and income and assets are verified by documents submitted by the borrower. A true Pre-Approval is a commitment by the bank to lend to the borrower. The bank can tell you what the terms of your loan are and can give you a mortgage quote that applies directly to your circumstances.

Pre-Qualification merely means that a loan officer feels confident that the borrower would qualify for a loan based on a conversation over the phone or in-person. Often, the loan officer extends a Pre-Qualification without an extensive look at the borrower's credit history, debt, income and assets. The bank makes no gaurantees that the potential borrower qualifies for a loan.

Borrowers that only get Pre-Qualified can later be severely disappointed when they do not qualify for a mortgage program or have to accept an interest rate and terms that do not fit their budget. Needless to say, getting Pre-Approved is smart and will save you a lot of time, energy and heartache. All borrowers should begin their home search first by being Pre-Approved by a reputable bank or mortgage lender.