Pre-Qualification Vs. Pre-Approval

“WHAT IS THE DIFFERENCE BETWEEN PRE-QUALIFICATION AND PRE-APPROVAL? ARE THOSE TWO TERMS INTERCHANGEABLE? DO THEY BASICALLY MEAN THE SAME THING?”

Although both pre-qualification and pre-approval are measurements of how much a buyer is able to afford in terms of a loan, the differences between the two are very important. Put simply, a pre-qualification is a quick estimate of what a buyer can spend and a pre-approval is a formal process in which a lender states the maximum amount they are willing to loan based on verification of a buyer’s assets, income, and employment. More than likely, a pre-qualification is based on a few simple details (such as your yearly income) you provide to the lender; for a pre-qualification, a lender does not verify these details. On the other hand, for a pre-approval, you will need to fill out a mortgage application with a specific lender and the bank will take an in-depth look at all aspects of your finances: employment, income, assets, liabilities, stocks, and cash available. Needless to say, the thoroughness of a pre-approval makes it an essential tool in the home-buying process—especially in today’s competitive market. In the eyes of a seller, a pre-approval shows a serious commitment on the part of a buyer. One thing to note about pre-approval is that it is contingent on the home appraisal and title review.  ∆