Difference Between Pre-Approval Versus Pre-Qualification

March 15 2017 New Home

As Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” When you begin house hunting, being prepared means getting pre-qualified and pre-approved. So, what’s the difference?

Often, the words pre-qualified and pre-approved are used interchangeably. Some homebuyers believe they mean the same thing. However, they do not, and one can lead to more negotiating power than the other. Here’s the difference:


Pre-qualification is the first step in the mortgage process. It means you supply the bank or lender with your overall financial picture, including debt, income, and assets. Some lenders pull a credit report at this step and others do not. You may also discuss your goals with your lender and he/she can let you know the various mortgage options. The pre-qualification amount is an estimate of what you may be approved for—it’s not a sure thing since it is based only on the information you provide. When making an offer on a new home, pre-qualification doesn’t carry the same negotiating power as being pre-approved.


This step is much more involved and includes filling out a mortgage application and providing documentation to your lender such as tax returns, W-2s, pay stubs, etc. If your lender did not pull a credit report during the pre-qualification process, they now will do so. Your lender then uses all the information in your financial snapshot to confirm your ability to obtain financing and specify your approval amount. This position provides you with the most negotiating power when you are making an offer on a home as the offer will not be contingent upon you obtaining financing.

So, before you start looking for your dream home, get pre-qualified and pre-approved so you can have more negotiating power and be taken seriously as a buyer.

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