Pre-qualification vs. Pre-approval…What’s the difference?

January 7, 2009

This is a question that loan brokers and real estate agents get asked quite often.   I read a number of real estate websites and blogs during the course of a given week, and I find that the two terms are often used interchangeably.  But make no mistake, there is a difference between a pre-qualification and a pre-approval when it comes to borrowing money — and it's important for you know the difference, regardless of which side of the transaction you are on.

Since I'm not an expert in home finances like a mortgage broker, I asked such an expert to clearly spell out the difference.  Adam O'Donnell is a  Certified Mortgage Planning Specialist with Guarantee Mortgage, and he was kind enough to do just that:

Loan Pre-Qualification:

“Pre-Qualification” simply means you have provided your income, assets, work history, and other basics relative to your personal financial position, and that your mortgage specialist then states that your are qualified based on the information that you have provided.  These tend not to be very accurate since many people round up with income and assets..

Loan Pre-Approval:

“Pre-Approval” means you have completed an application, and submitted your pay stubs, W-2's, and asset statements, and that your mortgage specialist has verified this information.  He has subsequently received either an automated underwriting decision stating an approval, or that he has submitted your loan to an Underwriter and have received an approval.

As you can see from these definitions, getting a loan pre-approval is much more of an involved process.  Consequently, they carry much more weight than a pre-qual when a contract is about to be executed.   Pre-qual's are nice to have when you first start shopping for a home, but be prepared for the astute home seller to demand a pre-approval from you before they're willing to sit down and hammer out a contract.

If you had this same question, I hope we've been able to answer it.   Thanks to Adam for his contribution to this post — feel free to contact him directly by clicking the link on his name above.

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