Pre-Qualification vs Pre-Approval

When you initially set out to purchase a new home, the real estate agent(s) and home seller will want to know you can actually afford the thing. Heck, you’ll want to know too.

After all, if you can’t afford to buy it, you’ll be wasting everyone’s time. Aside from affordability concerns, you may find other issues that disqualify you from obtaining a mortgage (do I qualify for a mortgage?).

Agents and home sellers will also want to know that you’re committed to buying a home, as opposed to those just casually browsing.

For these reasons, most real estate agents will demand that you get pre-approved before they even begin showing you prospective properties. Most agents have a mortgage contact they’ll likely refer to you to get the ball rolling.

Tip: You can use this contact for your pre-qualification and pre-approval needs, but don’t forget to shop around with other banks and brokers as well to ensure you obtain the lowest mortgage rate possible!

What Is a Pre-Qualification?

If you choose to finance the home purchase with a mortgage, you’ll need to get pre-qualified first. A “pre-qualification” isn’t as robust as a pre-approval, but it’s a good first step to ensure you can purchase the home you desire (or any one at all).

A pre-qualification is a pretty straightforward, simple check to see what you can afford based on your income/debt levels (debt-to-income ratio), assets, down payment, employment history, perceived credit score, and so on.

[What credit score do I need to get a mortgage?]

You can get pre-qualified very quickly and easily with a bank or mortgage broker, but it won’t carry much weight in the eyes of the agent or the seller.

After all, with a pre-qualification you’re simply supplying estimates and your credit report probably hasn’t yet been run (though it should be pulled early on in the process). That said, a pre-qualification, or pre-qual, is just a determination of what you’d likely qualify for if you made an offer and applied for a home loan.

It’s not necessarily a waste of time, but it’s not going to get you very far.  You can liken it to running a few numbers to see where you stand, but it cannot be used in place of a pre-approval.

What Is a Pre-Approval?

A pre-approval, on the other hand, actually has legs. It’s a written, conditional commitment from a bank or mortgage lender that says you are pre-approved for the mortgage financing in question.

It comes only after filling out a loan application, supplying verified income, asset, and employment documentation (assuming these items are necessary), running credit, and underwriting the loan file.

Acquiring a pre-approval shows the interested parties (sellers, agents) that you’re a committed buyer, boosting your chances of sealing the deal at the price you want. It will also show you how much house you can afford, not just an estimate.

Pre-Approval Requirements:

  • Credit report
  • Bank statements
  • Pay stubs
  • Tax returns

Once you provide all the required documentation and get the pre-approval letter from a bank or lender, it is typically valid for 60-90 days. Just note that things can change during that time, such as your credit score, so it’s not 100% guaranteed.

As you can see, being pre-approved and pre-qualified are not the same thing, so make sure you know the difference before shopping for a home.

Do You Need a Pre-Approval Letter to Make an Offer?

At the end of the day, you don’t necessarily NEED a pre-approval letter to make an offer on a piece of property.  But nowadays, with so few properties on the market, and so many multiple-bid situations, it’s often a requirement just to hear back.

Sure, you can tell your real estate agent to tell the listing agent that you’ve got an 800 credit score, $1 million in the bank, and a job that pays you $500,00 a year. And they might say fine, skip the pre-approval.

But chances are that’s not your financial profile, so just to play ball and keep everyone happy, it often makes sense to get the pre-approval done. It will also strengthen your offer.

And as I alluded to earlier in this post, it’s good to know where you stand as well.  You might think you’re a sure shot at getting a mortgage, but surprises aren’t all that uncommon and mortgage guidelines change all the time.

So a pre-approval could actually save you time and money, despite being a task that needs to be taken care of upfront.  It shouldn’t take very much work to get one anyways.

Just remember not to feel obligated to use the bank that furnishes the pre-approval letter for you!

To summarize the difference between a pre-qualification letter and a pre-approval letter (for you lazy readers):

Pre-Qualification:

  • First step
  • Less robust
  • Based on estimates
  • Doesn’t require a credit pull
  • Carries less weight/ not a sure thing
  • Not taken seriously

Pre-Approval:

  • Based on verified information
  • Must complete an actual loan application
  • Requires a credit pull
  • Must be underwritten (manual or automated)
  • Written conditional commitment
  • Shows sellers/real estate agents you’re serious

35 Comments

  1. Katherine Kelly March 20, 2015 at 5:48 pm -

    I am a 50 yr old woman who is coming out of a 30 yr marriage, I have a part time job that guarantees me 28-30 hours per week, I have had this one and only job, 14 months.
    Can you recommend any low income/first time home buyers programs in the Central Georgia area for me ?.
    I have good credit, low debt ( no current car or home loan or rent), and approximately 10 % down for a $55,000 ( or lower )
    for a home.
    Please point me in the right direction?

  2. Colin Robertson March 23, 2015 at 5:44 pm -

    Hi Katherine,

    I am not familiar with loan programs in the state of Georgia, but perhaps contacting a local HUD-approved housing counselor might be a good starting point. Or the Georgia Department of Community Affairs. The lack of employment history could be a problem, but the more time that goes by the less that’ll be a concern. Good luck!

  3. veronica March 30, 2015 at 2:53 pm -

    Colin,

    I have put in a loan application for a home it was pre-approved for 120,000, changed to 95,000 and now 60,000. I had a bankruptcy and divorce in 2011. I only have school loans, but I was told that they had to rerun my credit again in my maiden name. Is it not the practice of lenders to run loans by social security #s. In addition, they indicated that my bankruptcy was contested by some creditors. It was not the case, I asked them to send me the source they were getting the information from because this was puzzling, they indicated from my credit report. Which they highlighted the information as the consumer disputes this account. I am not sure what is occurring, I may be a risk to them. I started this application process on Feb. 17th, they gave me 3 pre-approval letters but the realtor indicated that it is not the correct type of notice. What do I do?

  4. Colin Robertson March 30, 2015 at 4:11 pm -

    Hi Veronica,

    If the 3 pre-approval letters are from three different lenders you may have a problem. If they’re all from one lender you may want to shop around a bit more and/or determine what’s going with your credit and try to clean it up before reapplying to avoid the same result over and over again.

  5. sara April 8, 2015 at 4:54 am -

    I have a question? If your pre approve for a certain amount on a new construction loan but before you sign any document you decide you want to add upgrades can the amount on the loan be change. example if the house is $240,000 but the upgrade will bump it up too $260,000?

  6. Colin Robertson April 8, 2015 at 12:24 pm -

    Sara,

    If a bank says you’re pre-approved to buy a $240k home, it generally means it’s conditional upon the home actually selling for $240k. If it turns out to be $260k, you may need to get another pre-approval for that amount, assuming a pre-approval is required. Or just hope you can get a larger mortgage based on your borrower profile.

  7. Mary April 14, 2015 at 9:02 am -

    Hi. I am just beginning the ‘Gee, I think it’s time to stop renting and buy a place’ process and research. My quesiton is about pre-qualification. I understand that it’s only to get a rough estimate about how much you can afford. But it also feels like the best place for me to start as I don’t know what amount of house I can afford ($150k?, $250k?, $350k) is a pre-qualification. But, I don’t know what number I should put into the loan amount field. Shouild I put a number on the higher end ($350k+) to see what the most is I can qualify for? Or should I put in a smaller number so that my pre-qualification doesn’t get a thumbs down? If it helps, I’m single, make about $90k per year, have no debts and could have about $40k or $50k to put down in about a year. Thanks.

  8. Colin Robertson April 14, 2015 at 11:39 am -

    Hey Mary,

    You can simply ask a bank or broker to determine how much you can borrow based on your income, debt, assets, etc without putting in a loan amount. But if you do they shouldn’t give you a thumbs down, they’ll just tell you that you can only get a loan size of X if you overshoot it.

  9. Michael April 21, 2015 at 5:37 am -

    How long does getting pre qualified take?

  10. Colin Robertson April 21, 2015 at 8:16 am -

    Michael,

    It depends on the broker/lender…could take a few hours, a day or a few days.

  11. Christine Hinderliter April 22, 2015 at 10:19 am -

    my husband and I were pre-approved for a FHA loan. We made an offer it has gotten accepted and now we are awaiting the contract to be drawn. Im trying to be as optimistic as possible but im concerned that when its time to close we wont get approved for the actual loan. I believe our Pre-Approval was for around 300,000 and the offer was accepted at 197,240. Combined last year we made 90,000. Have 2 car loans but no other debt. I guess im just looking for peace of mind that this will not get pulled out from under us at the last minute. Any reasons as to why it should, and should I be worried?

  12. Colin Robertson April 22, 2015 at 2:13 pm -

    Christine,

    There are many reasons why loans get declined, and it’s impossible to say without the loan being underwritten. It’s certainly a stressful process, but hopefully your pre-approval was thorough and caught any potential issues. It seems to be for an amount well above what you’re actually purchasing. Good luck!

  13. Maria Diania July 10, 2015 at 8:00 pm -

    Hi Colin,
    About two months ago I took out a loan,paid off all our debt, and now have a one payment for that. We decided that its also time to start the process of home ownership. We will be using the VA home loan. We looked online and a realtor got in touch with us, the man then got us in contact with a broker from a bank, who then took our ss# and DOB. told us we are proved for xxxx$. The realtor who first spoke to us, put us in contact with a different realtor who just showed us a house tonight that we are interested in. He said that we can contact the bank broker that we spoke to earlier in the week and/or speak to a lender that he knows and works with. Now here is where I’m confused. (also have to mention my husband has left for duty for two wks and won’t return until 7/25) do i seek out both the broker and the lender to see who can give us the best deal and most affordable? What questions do I ask them? I’m confused as to all that I’m reading about pros and cons. they are also both familiar with VA home loans and other deals for veterans..

  14. Ruth July 10, 2015 at 9:33 pm -

    Hi Mr. Robertson. I want to know, if I get pre-approved now and it is not to my liking and I decide to get pre-approved next year, would it affect my credit score, with each credit check? I have a part-time job but applying to get another and I am not sure I will get approved for an amount that can get an okay place in Maryland. But I still wanted to go through the process so that I can see what I need to improve in. Please advise, thanks.

  15. Colin Robertson July 15, 2015 at 11:45 am -

    Ruth,

    Pre-approvals a year apart will likely result in two unrelated credit inquiries (assuming they both pull your credit). It could ding your credit score somewhat, but the effect of inquiries diminishes over time, especially after one year. And sometimes they only lower your score a handful of points if at all. If you don’t want them to pull your credit, perhaps getting per-qualfiied instead makes more sense.

  16. Colin Robertson July 15, 2015 at 12:08 pm -

    Maria,

    Realtors generally have preferred lenders they work with…it’s a referral network so they’ll usually always recommend that you work with “their guy or gal” instead of someone else. But you aren’t obligated to use their person. You can still shop around and compare costs and pros and cons of working with both.

  17. Emily September 1, 2015 at 2:05 pm -

    My husband and I are curious to do a pre-approval, but mainly to just get an idea of what we can currently afford. Does it look ‘bad’ on credit etc. to do a pre-approval process but not actually buy a home?

    We currently only have $10,000 saved for a down on a home.

  18. Colin Robertson September 1, 2015 at 2:34 pm -

    Emily,

    You can check your own credit (without the inquiry/ding) and provide your scores to a potential lender to get a good idea of what you can afford/qualify for without the lender actually running your credit themselves.

  19. Donna September 10, 2015 at 4:57 am -

    What kind of information are underwriters looking for? I have heard that they “dig deep”. I am not sure what this means but I do know that I have had credit issues in the past that have been resolved. Will I have to attempt to contact past creditors (over 10 yrs old for example) to obtain proof that the debt was satisfied. I have no debt other than school loans. Make $31,000 a year and have around $10,000 so far toward a down payment. I have worked with and completed the HUD credit counseling program and at this point I am just saving for more of a down payment but am also researching prior to actually going to get a pre-qualification or pre-approval.

  20. Cristal September 16, 2015 at 12:01 pm -

    Hi Colin. Me and my fiancé just got pre-approved for an FHA loan for 200K last month. We have been looking but are leaning more and more towards a new house but the houses are just out of reach being at $219 and up. We have about 10K saved for a down payment. I was told that if in 6 months we don’t find anything we have to be pre-approved again? Here is says the loan amount is good for 30-90 days. I am confused on which is more accurate. Also do you think since I just got a raise and my fiancé just did, will that increase the loan amount if we need to get pre-approved again? We have good credit, well over 700s. Thanks.

  21. Colin Robertson September 16, 2015 at 2:16 pm -

    Cristal,

    Pre-approvals “expire” after a few months because things change, so lenders can’t just assume your situation is exactly the same for months. Raises are great but lenders like to look back at your income over the past couple years to determine affordability. If you have costly monthly liabilities that can be paid down, like loans and credit cards, that might be one way to lower your DTI and increase what you can afford in the way of a mortgage payment. But paying down existing stuff will obviously reduce your cash on hand, though the raise could help minimize that. Good luck!

  22. Chris October 27, 2015 at 5:32 pm -

    Hi Colin,

    I’ve been casually looking at listings for condos on the West side of Chicago in the $285-300K range. I’m a first time buyer, so I’m a little apprehensive about starting the pre-approval process until I’m sure of what to expect. I think I’m in a good position to qualify for a mortgage, I’m just not sure whether a bank will lend me enough for the price range I’m looking at. Here is my situation: 800 credit score, stable work history, no debt, $55K/yr salary, $15-20K for a down payment. The majority of the mortgage calculators I’ve used say I’d qualify for a mortgage well short of the amount I’d need for my stated price range (~$280K).

    Are the calculators right, or do you think a bank would pre-approve me for the price range I’m looking at?

    I appreciate the advice, thank you.

  23. JULIEANN LIPP May 10, 2016 at 3:20 am -

    Practical commentary . I learned a lot from the information ! Does anyone know if my company would be able to obtain a blank a form version to fill out ?

  24. Daniel Becker May 27, 2016 at 10:39 pm -

    Hi Colin,

    My wife and I are preapproved for a home loan in Florida and we started placing bids and our finance agent told us that we have to work in Florida at least 30 days before we can actually get the home. We currently live in SC and moving down without a home is out of the question and we don’t want to waste the money of sec deposit, first months rent, cutting on utilities etc. is there any way at all around this? Both my wife and I work in the service industry and we are both getting transfers to the Orlando area from our franchise restaurant jobs that we currently work for (two different companies). We have a lot more than 30 days history at these jobs and we will be doing the same job when we move down, please help us understand

  25. Colin Robertson June 1, 2016 at 8:11 am -

    Daniel,

    I haven’t heard of having to live in X state for 30 days to get approved. So long as the job is in the same industry/line of work and is stable, it shouldn’t be a roadblock…how else would people relocate and own homes? And why would 30 days make any difference at all?

  26. Charisse Hill June 14, 2016 at 11:58 am -

    I live in Texas and I recently took the first time home buyers education class so I can learn about the home buying process and I qualify for down payment assistants through my county. My question is does the down payment assistants lower the cost of the mortgage pre month or what exactly does it go towards?

  27. April June 14, 2016 at 3:14 pm -

    Hi Colin,

    My husband and I are wanting to buy our first home and really don’t know where to start. He is an OTR trucker so far this year he’s brought in around $30,000 and is currently buying his truck and we have a car payment. I bring home about $630 a month. Our credit is not the best, his is at about 572 right now and mine is 604. Do you think that we could get a loan with those scores or no?

  28. Colin Robertson June 24, 2016 at 3:36 pm -

    Charisse,

    It would lower what you need to put down on the home. So if you needed to put down $20k, and it provided $10k, you’d only need $10k of your own money for down payment.

  29. Colin Robertson June 24, 2016 at 3:37 pm -

    April,

    While it may be possible, you might be better off working on your credit for a bit longer to get the scores above 620 at minimum, and ideally even higher to get more favorable mortgage rates and more loan options. Good luck!

  30. Laura July 7, 2016 at 11:56 am -

    Hi Colin,

    I was pre-approved for a conventional, but portfolio loan. I think the portfolio, specific to my bank, is relevant because of new student loan laws in place as of 03/31 of this year, which says that 10% of student loan amount be applied to your debt/income ratio, rather than the actual payment- a problem for most of us with student loans. This loan uses my actual payment.
    I found a home and supplied the P&S to bank for full mortgage application.
    My concern is that rather than asking for current and even last year’s contracts (I am a teacher-new career to me), the bank wants 2 years of W2s. This reflects a year of grad school and unpaid internship (2014) and only half a year of my last contract (2015-16 school year) and it does not even consider my current contract(2016-17), which includes a raise in salary, small as it is.
    Do you think this is a problem or is the prequal a decent indicator of mortgage outcome?
    Thank you,
    Lauri

  31. Colin Robertson July 7, 2016 at 3:20 pm -

    Lauri,

    If they did a proper pre-approval using everything you wrote here and said you qualify it may not be an issue; they may just want that paperwork to be thorough. However, things can come up after a pre-approval so it’s never 100% guaranteed. If you’re concerned you’ll fall short because of income you may want to let them know sooner rather than later instead of just hoping it all works out. You could also shop around a bit to get some other opinions and rates/loan options while you’re at it.

  32. Marilyn July 15, 2016 at 1:23 pm -

    I was filled out a loan application and received a phone call saying I’m eligible for pre-qualification and now have to supply two bank statements, two check stubs, two years of w2s and tax returns, and etc. They also sent me a list of do’s and dont’s. One of them says the amount in my checking account shouldn’t go below what was told to them. If it does, would this affect my chances of getting the home loan?

  33. Colin Robertson July 18, 2016 at 11:07 am -

    Marilyn,

    While I can’t say with certainty, lenders basically look at a snapshot of your financials to determine eligibility. It may be the case that you need X amount in assets to qualify for the loan you were initially pre-qualified for. As a rule of thumb, if you are looking to get a mortgage it’s recommended that you not move money around if you can avoid it. It just complicates things and often requires more paperwork, though you may still be approved once you paper trail everything.

  34. reginald July 19, 2016 at 9:06 am -

    Hello Colin
    I would like to know if lenders pull your credit and ask for check stubs again after being preapproved? Do lenders consider overtime as part of your income if it’s consistent? Thanks

  35. Colin Robertson July 20, 2016 at 8:11 am -

    Reginald,

    Lenders generally check your credit just before closing to make sure no new obligations have been created or credit ran up during application process. Pay stubs tend to be good for X amount of days before new ones might be required. Overtime income may be used if consistent (been receiving past 12 months+) and expected to continue for foreseeable future.

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