Understanding the Difference Between Pre-Qualification and Pre-Approval for a Residential Mortgage

When you go to see a realtor about buying a home, he or she will probably asked if you have been pre-qualified or pre-approved for a loan. Many agents may wait until you have at least a pre-qualification before showing you homes. Some may require that you are pre-approved. It is important you understand the difference between these two terms to avoid surprises or problems when it comes time to go to closing.


Pre-qualification is the term used when a mortgage specialist has gone over your income and debt payments to determine how much of a mortgage you can afford. The important thing to note is that the figures used in the calculation are provided by you, with no research or credit checking. This means things can be wrong. There may be a debt you forgot about that could make a difference. It is also possible that your credit worthiness is less than what the lender requires. However, it can give you an idea of the price range to be looking at when talking with the real estate agent.


Pre-approval is when the mortgage specialist has run a credit report on your financial situation. He or she will also verify your income. You will fill out a credit application for a loan, with the amount determined by the pre-qualification. Of course, if the information you gave was not accurate, you may need to adjust the amount for which you are applying. If everything goes through, the lender may offer you a guaranteed interest rate for anywhere from 30 to 120 days. However, it should be noted that this rate and the approval are based on your financial situation at that time. In other words, do not go out and buy new furniture or anything else on credit until after you have gone to closing on the house. The lender may decide to pull another credit report just before closing. If you have more debt, it could change things, like lowering your pre-qualified amount, or even making your debt ratio too high for a loan at all.

Sit down with mortgage specialist, ask for a pre-qualification so you can start to look at homes in your price range while waiting on a pre-approval for a residential mortgage loan. Once you are approved, find the house of your dreams and don't make any changes to your finances until after you have the keys. Only then are you actually a homeowner.