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Pre-Qualification vs. Pre-Approval: What’s the Difference?

Buying your first home is a huge financial milestone. Whether you’re just starting to consider home ownership or are already entrenched in the search for your first home, there’s an important step I recommend you take before making an offer or even starting to shop around: Get a pre-qualification or pre-approval letter from a mortgage lender.

Having this letter from a mortgage lender in advance can save you from major disappointment if you find your perfect home, make an offer, and then find you the bank has denied your mortgage application.

Prequalification and preapproval is simply when a lender takes a fast look at your credit and decides, preliminarily, that you’re eligible for a mortgage. Although this does not guarantee your ability to get any mortgage, it does give you an upper hand when negotiating with sellers.

So, what’s the difference between pre-qualification and pre-approval?

Mortgage Pre-Qualification

Pre-qualification is the less formal of the two. Basically, a lender tells you how much of a mortgage they would be willing to lend you based upon information that you provide. The lender doesn’t check your credit or vet your income and assets; they just reply upon what you tell them. Banks don’t charge for pre-qualification, and there’s no reason you have to go with a bank that gives you pre-qualification. At the same time, there’s no guarantee you’ll get the loan based upon pre qualification. If the lender later discovers that your credit is less stellar than what you said it was, the loan may fall through.

Mortgage Pre-Approval

When you obtain pre-approval, the bank checks your credit, employment history, assets, and other debts. Most reputable lenders don’t charge for pre-approval, either, although some do—so be sure to ask. Again, you’re not under any obligation to go with a lender that provides you with pre-approval, although if their rates look good, some of your work applying for the mortgage is already done for you.

  • Ready to start? Get mortgage pre-approval online with leading mortgage comparison site LendingTree. It’s fast and free, and will give you a sense of the kinds of mortgages you’ll be approved for in minutes.

Published or updated on October 26, 2009

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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