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How are Pre-Qualification and Pre-Approval Different for a Mortgage Loan?

By Kevin Landis

If you thought getting pre-qualified and getting pre-approved are the same thing, read on to see how different they are when getting a mortgage loan.

Getting pre-qualified and pre-approved are the first two steps in a mortgage-loan process. When applying for a mortgage, the amount of the loan is always a focal point. In practice, borrowers do not make a direct request on a specific loan amount although they may mention the price range on the houses they are looking for. The lender determines what loan amount the borrower is likely able to afford. Meanwhile, the amount of financing a borrower can get as a buyer is also in great interest of potential sellers and the agent the buyer is working with. A purchase contract contingent on obtaining a specified amount of financing could fall through if the mortgage falls short. Pre-qualifying and pre-approval specifically address the loan-amount issue concerning both mortgage and purchase.

Pre-Qualified

Getting pre-qualified is the first step in the mortgage-loan process. It’s based on the borrower’s most basic financial information, such as income, debt, and assets. There’s no in-depth analysis of credit reports and submission of any comprehensive sets of supporting documentation. It can be done after a brief meeting with the lender or over the phone or on the Internet. It does not cost the borrower anything at this stage. The lender will issue the borrower a letter of pre-qualification that states a specific loan amount the borrower is qualified for. There is no commitment to a mortgage loan from either side at this point.

Pre-Approved

Getting pre-approved is the second step in the mortgage-loan process. This is when the borrower will fill out an official mortgage application and pay the application fee. The lender will perform an extensive investigation on the borrower’s financial background and a thorough check on the credit rating. Interest rates and mortgage options are discussed in further details. With a pre-approval, there will also be a conditional commitment in writing from the lender. At this stage, the borrower is one step further towards getting a mortgage loan.

Potential Benefits of Getting Pre-Qualified and Pre-Approved

Pre-qualification should be done before any serious house searches. Both sellers and agents prefer to work with potential buyers who have been at least pre-qualified. Also get pre-approved as soon as possible. A pre-approval carries more weight than a pre-qualification when making an offer, as the buyer is not contingent on getting the financing and can move more quickly toward closing.

Related posts:

1. How Long Does A Mortgage Pre-Approval Last?
2. How Do I Pre-Qualify For A Mortgage Loan?
3. How Do I Get Pre-Approved For A Home Mortgage?
4. How Long Does It Take To Close A Mortgage Loan?
5. How Long Is A Mortgage Pre-Approval Good For?