Pre-qualification vs. Pre-Approval
The Main Differences, Explained.
Pre-qualification is the first step.
Pre-qualification is the first, most informal step in the mortgage application process. Most people will go through the pre-qualification process before they sit down with a bank or lender and decide to apply for their mortgage.
Pre-qualification is less formal.
These days, you can easily get pre-qualified online or over the phone. It is based on information that you provide to the bank, so it is much less in-depth. You aren’t required to work with the bank that you work with for the pre-qualification process.
Pre-qualification requires a lot less paperwork.
For pre-qualification, you should bring a summary of your financial background. You’ll most likely need proof of employment, your tax returns for the past two years, and a credit report, but the requirements may vary depending on the bank or lender.
For pre-approval, you’ll need quite a bit of paperwork, depending on the bank or lender. You’ll likely need information on debts (student loans, car payments, etc.), bank statements, paystubs, P&L statements, bonuses, information on stocks and bonds, and more.
Pre-qualification and pre-approval have different goals.
The goal of pre-qualification is to give you an idea of the kind of mortgage you might eventually be approved for. Pre-qualification will give you a general idea of your price range.
Pre-approval refers to actually applying for a mortgage. In order to be pre-approved, you’ll likely have to pay a fee, and the bank or lender will conduct extensive research on financial history. Being pre-approved means you will receive a written commitment from the bank or lender for your mortgage.
Pre-qualification and pre-approval are thought of differently by builders/sellers.
For a builder, a pre-approved client is their top lead. A pre-qualified client is second priority. Someone with neither pre-qualification nor pre-approval is the third priority. Pre-qualification shows you’re taking steps in the right direction and that you’re serious. It’s a great first step. But pre-approval shows you’re actually able to make the payment. Builders love to see both pre-qualification and pre-approval, but it is important to understand how the two are viewed slightly differently.