Pre-Qualified vs. Pre-Approved - Why Does It Matter?
Updated: Jun 5
Show Sellers that you are ready to to do business!
When you start on your home-buying journey, you’ll add all kinds of new vocabulary to you real estate glossary. Two important such terms are “pre-qualified” and “pre-approved”. Don't confuse them as being the same thing. They will both help you get to the closing table but one will get you there more soundly. Here’s what you need to know about one versus the other.
Pre-qualification can give you a rough idea of how much you can potentially borrow, which makes it just fine for the initial stages of your home search. It’s a relatively quick and easy way to figure out what your budget should be and learn more about what financing options are available to you. You’ll need basic details like your income, what price point you'd like to be shopping in and credit score. This information is quickly screened, which makes the process faster and simpler than preapproval. Sellers and their Agents will accept pre-qualification to support your offer, and it is often mentioned as a minimum requirement for offers. It will likely be less appealing if the Seller gets offers supported by pre-approval letters.
Pre-Approval is a much deeper dive and involves a thorough verification process. You’ll need to provide more information regarding your finances and employment, disclose your debt to income data and include important documents like tax returns. The Lender will also do a hard credit check, which can impact your credit score. It’s optimal to obtain a pre-approval letter before you make an offer. Being pre-approved give Sellers more confidence in you as a Buyer, as it shows you’re serious about the purchase and financing isn’t an issue for you.
You will ultimately have to provide all of the necessary information to your Lender, once you're under contract, so they can get you past underwriting, to purchase a home. Do it up-front, get it out of the way and show the Sellers that you are ready to to do business!