What is the difference between pre approval and pre qualification

Preapproval requires you to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report.

You'll provide information in the form of W-2s, a current pay stub, a summary of your assets and your total monthly expenses, and if you already own real estate, a copy of your mortgage statement and home insurance policy. If you satisfy the requirements, you'll get a preapproval letter, which states the amount and type of mortgage the lender is willing to offer, along with the terms.

You can show the letter to sellers and their real estate agents when making offers on homes. A preapproval offer isn't a guarantee, but it shows you're a serious buyer, which can give you leverage in a competitive market. You don't have to get pre-qualified first. Real estate has long been the go-to investment for those looking to build long-term wealth for generations.

Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide. Pre-qualification and pre-approval are two terms often thrown around in the home mortgage world.

You may have even been told you need one by your real estate agent. What do they mean, though? And are they interchangeable? More importantly, how do you get one? Pre-qualification and pre-approval are steps in the mortgage process , and with each, the lender aims to evaluate your qualifications for a loan. This might mean looking at your income, credit score, or other financial details. A mortgage pre-qualification or pre-approval letter can serve as a helpful tool in both budgeting for and guiding your home search.

Depending on which kind you have, it might also help you stand out from other buyers in a bidding war. Generally speaking, though, a mortgage pre-qualification is less precise than a pre-approval. Then, the lender takes this information, applies it against their loan requirements, and determines if you qualify and for how much.

Pre-approvals, on the other hand, involve verification. The lender will actually pull your credit to see your score and payment history, and they will request documents like pay stubs, W-2s, and tax returns, too.

This allows them to more accurately assess your qualifications and the loan payment you could presumably cover. To sum it up, here are the main differences between pre-approved and pre-qualified. For this reason, a pre-approval letter usually holds more weight than a pre-qualification letter does, at least with sellers. Every lender has a slightly different approach to pre-qualifying and pre-approving borrowers.

The lender will then offer pre-approval up to a specified amount. Going through the pre-approval process also offers a better idea of the interest rate to be charged. Some lenders allow borrowers to lock in an interest rate or charge an application fee for pre-approval, which can amount to several hundred dollars. Lenders will provide a conditional commitment in writing for an exact loan amount, allowing borrowers to look for homes at or below that price level.

This puts borrowers at an advantage when dealing with a seller because they're one step closer to getting an actual mortgage. Keep in mind that you don't have to shop at the top of your price range. Below is a quick rundown of how pre-qualification and pre-approval differ. The advantage of completing both steps—pre-qualification and pre-approval—before looking for a home is that it offers an idea of how much a borrower has to spend.

This prevents wasted time looking at properties that are too expensive. Getting pre-approved for a mortgage also speeds up the actual buying process, letting the seller know that the offer is serious in a competitive market. The borrower gives the lender a copy of the purchase agreement and any other documentation necessary as part of the full underwriting process after a home has been chosen and an offer made.

The lender hires a third-party certified or licensed contractor to do a home appraisal to determine the home's value. The final step in the process is a loan commitment , which is only issued by a bank when it has approved the borrower, as well as the home in question—meaning the property is appraised at or above the sales price. The bank might also require more information if the appraiser brings up anything that should be investigated, such as structural problems or a faulty HVAC system.

Getting pre-qualified and pre-approved for a mortgage gives potential homebuyers a good idea in advance of how much house they can afford. But most sellers will be more willing to negotiate with those who are pre-approved.

Pre-approval also allows borrowers to close on a home more quickly, offering an edge in a competitive market. Department of Housing. Purchasing A Home. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Unlike getting pre-qualified, when getting pre-approved, you provide documented financial information pay stubs, statements, obligations, credit report, etc.

You still have to complete the application, go through the underwriting process, and wait for final approval. But being pre-approved indicates your intent to purchase, so sellers look fondly upon buyers with pre-approval letters. When the housing market is hot, homes sell fast — sometimes within hours of being listed.