Difference Between Pre-Approval and Pre-Qualification

A question that our Atlanta mortgage lender team is often asked is whether there is a difference or not between having a pre-qualification and a pre-approval, and is there any benefit. Both terms tend to get used interchangeably, however, there are differences that make one more beneficial than the other. Let's take a look at the two “Pre's” side by side.

The Similarities Between the Two “Pre's”

Both the pre-approval and the pre-qualification give an estimated figure of how much a lender is willing to approve you. Having this information is important because it gives you an idea of how much you could afford for a home and monthly mortgage repayments. This means you won't be wasting time looking at homes that are out of your range and budget. Both the pre-approval and the pre-qualification show real estate agents and sellers that you are committed to buying a home. This is where the similarities between the two end.

Key Differences between a Pre-Approval and a Pre-Qualification

As you can see, the main difference is that the pre-qualification process uses data given by the person applying, whereas the pre-approval process will verify that data through things like a credit check.

The pre-qualification process gives the lender an overall snapshot of your finances, which will include your income, debts, and assets. The estimate that you are given is how much you “might” be approved for.

Pre-qualifications can usually be done over the phone and take up to 3 days to receive a pre-qualification letter from the lender. What you need to keep in mind is that the amount that you are given is not a sure thing and won't carry the same weight when buying a home. You will still need to go through the mortgage process and there is a chance that, with an in-depth look at your finances, you could end up not getting the pre-qualification amount.

Why a Pre-Approval Is Better

The pre-approval process is much more involved and gives the lender an indication of how creditworthy you are and what your borrowing ability is. You are basically going through the mortgage application process and will need to provide documentation. You will get a better understanding of the interest rates that you will be charged, and a definitive amount that the lender is willing to lend you.

It gives you, as the borrower, an advantage when it comes to dealing with sellers because it tells them that there is less of a chance that the sale will fall through, and that the process will be shorter than when you get a pre-approval. In a competitive housing market, it can be that extra push a seller needs to choose you over someone without a pre-approval.

You may be charged a fee for a pre-approval, which can cost a couple of hundred dollars. You will also have certain conditions that you will need to meet upon closing, such as not having any major changes in your credit history, job situation, or living situation.

Is it worth getting a pre-approval over a pre-qualification? Yes, because you have an amount to work with when buying a home, you are one step closer to the mortgage approval, and a pre-approval holds more weight with sellers and real estate agents.

* You should be aware that, even though you have been given a pre-approval, it is not written in stone. If you do not meet the terms and conditions given at closing, you can be rejected. This can happen in situations where the borrower has gone through pre-approval, has then taken out another line of credit, which will lower their original credit score, and does not get approval when everything is checked over before the sale. Our advice is that you save any big changes until after closing.

Do you want to see how much you can be approved for? Give our Atlanta mortgage lender team a call today?