The Difference between Loan Pre-Qualification and Pre-Approval

Many people routinely hear the terms "loan pre-qualification' and "loan pre-approval" thrown around interchangeably. Yet these do not refer to the same thing. If you are in the market for a new mortgage, you need to understand the difference between these two terms. 

Loan Pre-Qualification

The term "loan pre-qualification" means that you are qualified to be approved for a mortgage loan. It does not mean that you are actually approved for one. A loan pre-qualification is actually a very simple process that can be done within a few minutes. You could potentially do this step over the phone if you wanted to.

When you talk to a lender about getting pre-qualified, they will take a look at your basic financial information. They will ask you some basic questions about how much money you make, how much debt you have and what assets you may bring to the table. They will ask you such questions to gain a general idea of how good your credit is. However, they will not actually pull your credit file and examine it. They will not verify your income or look at anything officially. 

This can be a first step in the process of getting a mortgage. It can help you determine about how much money you could get with a mortgage. It does not mean anything beyond that, though. 

Loan Pre-Approval

The loan pre-approval carries with it a little bit more weight. Sellers and real estate agents will look at you much more seriously if you are pre-approved for a loan instead of just pre-qualified. Being pre-approved for a loan means that you have been through the rigorous loan approval process that comes with most mortgages. You have given the lender all of your financial information just like you did with the pre-qualification. The main difference is that now the lender is verifying everything. They are pulling your credit file, looking at your score and scrutinizing any blemishes on the report. 

The lender is also going to verify your employment and your income. They will call your employer and make sure that you make the amount of money that you claim. They will make sure that you are in good standing with your job and it appears to be steady employment.

They will also analyze your overall debt load and determine whether or not you have your debt under control. They will use complex financial ratios to determine whether or not you would be a good borrower. 

Once you are pre-approved, you know exactly how much money you can borrow for a mortgage. With pre-qualification, you knew a range of amounts that you could possibly get if everything checked out. This option provides you with more certainty in your search for a home. 

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