Important points
A prequalification is an estimate of how much money you may be eligible to borrow, based on basic financial information you provide. A pre-approval is a conditional offer from a lender that indicates how much money they are willing to lend, pending final underwriting. Pre-approval is more important than pre-qualification in the home buying process.
If you’re considering buying a home, you’ve probably heard that you need pre-qualification or pre-approval to get a mortgage. Although these terms are often used interchangeably, there is a distinct difference between the two terms that all home buyers should understand.
This Redfin article outlines the difference between pre-qualification and pre-approval and which option is best for you. Whether you’re touring a home in Norfolk, Virginia, or Dallas, Texas, here’s what you need to know about pre-approvals and pre-qualifications.
What does pre-qualification mean?
The pre-qualification is an informal examination of your financial situation based on information you provide to the lender. It gives you an estimate of how much you can borrow and helps you understand your overall financial situation.
If you’re just starting to consider buying a home, pre-qualification is a good indicator of your borrowing ability. This is a superficial look at your financial situation, so you have the opportunity to work on improving your financial situation before getting pre-approval.
What does pre-approval mean?
A mortgage pre-approval is an official statement from your lender telling you how much money you are eligible to borrow. It also determines the type of loan and interest rate you will be approved for. Joe Russ, a real estate agent with Redfin, explains that getting pre-approved for a mortgage is “proving you can afford it.” This shows you are a serious buyer and should strongly consider your offer.
During the mortgage pre-approval process, lenders will ask for documents such as W-2s, bank statements, tax returns, and proof of assets. The lender will run your credit report, resulting in a “hard check” that could drop your credit score by several points.
What is the difference between pre-qualification and pre-approval?
Pre-qualification gives you a general idea of how much money you can afford, while pre-approval confirms that with verified financial information and a credit check.
Pre-Qualification Pre-approval Purpose To get an overview of your borrowing power To show sellers that you are a serious and qualified buyer Validity period is usually not limited Usually valid for 60 to 90 days Used for early planning, viewing homes, making offers, and expediting the loan process Required before offer No No, especially in competitive markets Often yes Required documents Self-declared information about: Proof of income Proof of employment Identification Assets Credit history Identification Debt-to-income ratio (DTI) W-2 Statement Pay Stub Bank Statement Driver’s License Social Security Number Credit Check Soft Check Hard Check Timeline Minutes Approximately 1-3 Business Days
When should I get pre-qualified?
If you’re casually considering a home but don’t necessarily plan on making an offer, it’s a good idea to get a pre-approval. You can also find out how much you can pay for a home and what types of mortgage loans are available. If you decide you’re not ready to buy, your credit score won’t be affected by the prequalification.
When should I get pre-approval?
If you’re ready to buy a home right away, pre-approval can be helpful, especially if you’re in a competitive market. Pre-approvals have an expiration date, so it’s important to get a pre-approval if you’re serious about buying a home in the near future. Additionally, there will be a heavy check on your credit score, so get pre-approval only if necessary.
Pre-approval and pre-qualification FAQs
How long does a mortgage pre-approval last?
Mortgage pre-approvals are typically valid for 90 days. Your pre-approval letter will have an expiration date, after which it will no longer be valid. The pre-approval letter “expires” because the borrower’s employment, assets, and debts may change. Lenders will need updated information before agreeing to another pre-approval.
Do I need to be pre-qualified before getting pre-approved?
No, you do not need to be pre-qualified to receive pre-approval. If you know you’re financially ready to buy and want to start the home buying process, you can skip prequalification and apply for preapproval.
When is the best time to get pre-approved?
Ideally, you would obtain a mortgage pre-approval letter before considering a home. Getting pre-approved for a mortgage shows sellers that you’re a serious buyer and may help your offer stand out.
Do I need pre-approval to make an offer?
No, technically no pre-approval is required to make an offer. However, including a pre-approval letter can strengthen your offer and show the seller that you’re a serious buyer who will likely be approved for financing.
Can my mortgage application be denied even with pre-approval?
Yes, lenders can still deny you a mortgage after pre-approval. This is rare, but can happen if you take out another line of credit, quit your job, or your home appraised for less than the loan amount.
