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Pre-Qualification vs. Pre-Approval
February 16, 2022

Pre-Qualification vs. Pre-Approval

by The CE Shop Team

What Is the Difference Between Pre-Qualification and Pre-Approval?

Between low mortgage rates and rent that seems ever-increasing (Redfin reported the average rent jumped a whopping 13% in the past year), many renters have decided to look into becoming homeowners. Perhaps you’re one of them: You don’t know where to start, but you know that you’re home-curious. You’ve heard terms like pre-qualification and pre-approval thrown around, but you’re unsure which one is right for you in your journey to owning your own piece of property. 

Each of these terms refers to a process that will help you learn how much home you can afford by looking at your financial health. Keep in mind, both pre-qualification and pre-approval are just estimates, and neither guarantees that you’ll close on the loan. They’re essentially stamps of mortgage approval, allowing you to chat with a lender about your finances and learn for which kind of mortgage you may qualify. Let us walk you through the difference between these two terms, so you know exactly where to start when the time comes.

What Is Pre-Qualification?

Pre-qualification is more informal than pre-approval. Lenders will ask you to provide basic financial information, then make an estimate of how much home you’ll be able to afford. This process is helpful when you start searching for a home, just so you aren’t searching wildly outside of your budget. Nobody wants to fall in love with a property they can’t afford!

Pre-qualification often relies on self-reported information, meaning lenders won’t verify the information you provide or hard pull your credit. This is why pre-qualification doesn’t carry as much weight as a pre-approval 𑁋 there is no verification of finances or credit, and no documents are required to be submitted.

It’s still a good first step to not only start working with a lender but also in getting a ballpark estimate of what you can afford to spend. Once pre-qualified, you’ll receive a pre-qualification letter that you can then hand over to your real estate agent to use in your home search. After you’ve secured pre-qualification, it’s time to look into the next step, which is pre-approval.

Pre-Qualification vs. Pre-Approval

What Is Pre-Approval?

Pre-approval requires a more in-depth look at your finances, with the end goal of securing approval for a mortgage. This process involves a lender taking a look at your entire financial history to determine if you can secure a mortgage and the type(s) of mortgage for which you would likely qualify. They will hard pull on your credit, as well as ask for documents that detail your financial history. During the pre-approval process, you’ll find out how much you’ve been approved to take out in the form of a loan, which will help you decide how much house you can afford.

You should look into getting pre-approved three months before you plan to buy property, as pre-approval is valid for 90 days. Don’t worry if your house hunting runs outside that time frame 𑁋 getting re-approved is simple if your finances haven’t changed much since first applying. Let’s take a look at what documents you should have prepared when going into pre-approval.

Documents You Will Need to Provide for Pre-Approval

  • Proof of identity
  • Proof of income dating back two years (in the form of W2s or paystubs)
  • Tax returns for the past two years
  • Rental/housing history
  • Credit history
  • Bank statements
  • Gift letters
  • Any other financial document 

Do you have lingering questions about pre-approval? Check out this ebook that dives deeper into the topic.

Now that you know more about pre-qualification vs. pre-approval, you’ll need to decide which one is right for you in your homebuying journey.

Should You Get Pre-Qualified or Pre-Approved?

Because pre-qualification is a more informal look at your finances, it’s beneficial to start there when you’re curious about buying a home. You’ll receive estimates on how much home you can afford, allowing you to dip your toes into the home search without impacting your credit score. Pre-qualification is not required for potential homebuyers, but if you choose to get pre-qualified, do so before pursuing pre-approval.

You’ll want to dive into the pre-approval process once you’re serious about buying a home. You must secure pre-approved to get approved for a mortgage, and you'll receive more specific numbers concerning the loan amount for which you’re approved and how much you can afford to pay for a home.

Don’t be afraid to utilize your mortgage lender — they have a plethora of knowledge on everything mortgage and are there to answer any questions you have. They will be able to guide you in the right direction regarding pre-qualification and pre-approval, easing your mind as you embark on the journey to homeownership.

Best of luck to you!

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