Mortgage Preapproval and Prequalification: Is There a Difference?

Mortgage rate conceptFor both home buyers and real estate investors getting a mortgage is a good way of buying their dream property. Whether you get a mortgage from banks or FHA multifamily lenders, getting pre-qualified and pre-approved is crucial. But what exactly does this mean? Read on to see how these often interchangeably used terms differ from one another and why they’re crucial to getting the home you’ve always dreamed of.

Pre-qualification Defined

Pre-qualification essentially means that a mortgage lender has already reviewed your credit score and considered your eligibility for a mortgage. In most cases, however, pre-qualification isn’t a guarantee. It just means that the lender would consider your application according to the basic information you submitted, but not including your latest credit report, assets, liabilities, and income.

Put simply, receiving a pre-qualification letter is like getting a financial picture that would provide you with an idea of the type of loan you could secure if the lender approves you. This could help you determine if your current financial circumstances could support a certain mortgage amount you’re qualified for. This will surely help if you’re just starting to look for homes that you could afford.

Pre-approval Defined

On the other hand, getting pre-approval means that a mortgage lender deems you qualified for a certain home loan amount according to the mortgage underwriter’s evaluation of the financial information you submitted. This information includes your income, latest credit report, assets, debts, pay stubs, and bank statements. Take note that your pre-approved status is dependent on the home appraisal. Being pre-approved also gives you an edge over buyers who aren’t in the event of a bidding war over the home you’re looking to purchase.

The Bottom Line

Yes, being pre-approved is helpful when you want to see how much money you could potentially borrow from a mortgage lender. Pre-approval can also help you make a great impression on property sellers, thus making them more likely to take you seriously as a buyer.