Pre-approved versus pre-qualified: what’s the difference?

While the terms prequalified and pre-approved are sometimes used interchangeably, they in fact refer to two different things. Here’s an overview of the differences between a mortgage pre-qualification and a mortgage preapproval.

mortgage pre-qualification

To get pre-qualified for a mortgage, a lender needs to evaluate your financial situation — including your income, assets and debts — to determine how much you can afford to borrow. It can usually be done for no cost, often over the phone or the internet.

The pre-qualification stage allows you to discuss different mortgage options with your lender and get a sense of your price range. How¬ever, the pre-qualified amount is just a rough estimate of how much you might be approved for.

mortgage pre-approval

Getting pre-approved for a mortgage is a more involved process. You’ll need to fill out an official mortgage application and supply the lender with the necessary information to thoroughly evaluate your financial history and credit score. This process allows the lender to tell you the mortgage amount for which you’ll be approved. You may also be able to lock in an interest rate.

When you get pre-approved, your lender will provide you with a letter explaining the loan you’re eligible for. Being pre-approved for a mortgage shows sellers you’re a serious contender when making offers.

Keep in mind that even after you’ve been pre-approved, you’re still not guaranteed to receive a loan. Once you’ve found the house you wish to buy, your lender will need to evaluate you and the property in question before committing to a loan amount and interest rate.