If you’re thinking about buying a home, you’ve probably heard the terms pre-qualified and pre-approved. They may sound like the same thing, but there’s an important difference between the two, and knowing where you stand can make a big difference when you’re ready to start shopping.
What Is a Pre-Qualification?
A pre-qualification is generally the starting point.
You provide a lender with information about things like your income, debts and credit, and based on that information, the lender can give you a rough idea of what you may be able to afford.
It can be a helpful first step because it gives you a general price range to work with and starts the conversation about financing. But keep in mind, a pre-qualification is typically based on information you provide and is not a solid loan approval.
Think of it as getting an idea of where you stand before you take the next step.
What Is a Pre-Approval?
A pre-approval takes things a step further.
Instead of relying primarily on information you provide, the lender actually reviews documentation to verify your financial picture. This can include pay stubs, tax returns, bank statements and other financial documents, along with a review of your credit.
That additional review makes a pre-approval much stronger than a pre-qualification. It gives you a better understanding of what you may realistically be able to borrow and puts you in a stronger position when you’re ready to make an offer.
Why Does It Matter?
Getting your financing lined up before you start seriously shopping can give you confidence, speed and strength.
Confidence: You have a better understanding of your price range before you fall in love with a home that’s outside of it.
Speed: When the right home comes along, having your financing information already reviewed can help you move forward more efficiently.
Strength: Sellers want to know that a buyer has the financial ability to purchase their home. A pre-approval can provide more assurance that you’re prepared to move forward.
The home-buying process can come with a lot of questions, and understanding your financing is one of the best places to start.
The Bottom Line
A pre-qualification is a conversation. A pre-approval is a commitment.
Both can be useful depending on where you are in the process, but knowing which one you have, and what it actually means—is important before you start making offers.
If you’re thinking about buying a home and aren’t sure whether you should get pre-qualified or pre-approved, give us a call. We’re happy to help you understand the process and point you in the right direction.
