While pre-approval and pre-qualification are both important when buying a home, there are slight differences that impact how smoothly your transaction will go. Both statuses also occur at different stages in the home buying and selling process.
Pre-qualification is the first step in the homebuying process and pre-approval is the next. For both you will provide your financial history and both can be used to let the seller know that you are serious about buying their home; but a pre-qualification carries more weight than a pre-approval.
A pre-qualification is a self-reported way to say you have the funding to buy the house while pre-approvals come from a lender or a trusted third party. Because the pre-approval is from a known lender and they are backing your offer, the seller will have an extra piece of mind you are the right choice since you are more likely to make it to and through the closing table than someone with a pre-qualification letter.
Let’s take a closer look at differences between pre-qualification vs pre-approval:
|An estimate of how much house you can afford.||X|
|A preliminary mortgage offer but not a guarantee loan approval.||X|
|Uses self reported financial information.||X|
|Runs your credit report.||X|
|Requires you to submit financial documentation like pay stubs, tax returns, etc.||X|
|Need to fill out a mortgage application.||X|
|Takes up to 3 days for an answer.||X|
|Will get an answer in 7-10 business days.||X|
|Given a letter to show you qualify to give to sellers and real estate agents.||X||X|
|Typically done over the phone or online.||X|
|No cost involved.||X|
|You can start house-hunting knowing how much you might be able to borrow.||X||X|
|Your lender estimates how much you can afford to borrow, what your interest rate could be, and how much your mortgage payments could be.||X|
|Gain a competitive advantage when you submit an offer.||X|
Pre-approvals vs pre-qualifications have three major differences.
Your pre-qualification gives you an estimate of what you can borrow while your pre-approval shows you what you can actually borrow.
A lender allows you to self-report your financial information to be pre-qualified where a pre-approval requires you to fill out a mortgage application and provide thorough documentation.
Your lender also runs a credit check with a pre-approval and does not with a pre-qualification allowing the lender to verify that they will fund your purchase. This gives you an advantage if the seller has to choose between two buyers, and the other buyer does not have a pre-approval letter.
While a pre-qualification gets your foot in the door, a pre-approval gets you the house you want. If you have any questions about the differences, or are ready to get to the closing table, contact us at 703.934.2100 and we’ll be ready to help you buy or sell your home quickly and hassle-free.