Pre-Washed, Pre-Soaked, Pre-Qualified, or Pre-Approved: What’s the Difference?

You want to buy a home and you go to look at houses.  The first thing the seller’s agent wants to know is whether you are pre-qualified or pre-approved for a mortgage.  A look of confusion passes over your face and it is like the agent is speaking a foreign language.  You’re thinking aren’t they the same thing and you wouldn’t be alone in believing that.  However, you’re in for a big surprise.  There is a huge difference between pre-qualifying for a mortgage and being pre-approved for one.  Pre-qualification is the first step in the mortgage process.  You provide your general financial information to the mortgage company which includes how much debt you have, your income, and any assets you have.  From this information, the mortgage company can then make a quick determination on an estimated loan amount you may be approved for.  This does not guarantee that you will actually be approved for that amount, but it gives you a general idea on the amount of home you can afford, basically a ballpark number.   This quick glance at your finances is usually done for free and in some cases can be done over the phone or internet.  They may even give you a letter of pre-qualification to provide to an agent.  They do not pull a credit report and are relying solely on the information you have provided to make a determination.  This is why many agents prefer that you get a pre-approval instead. 

You have been pre-qualified and now you are ready to go all in and get pre-approved for a mortgage.  This is when it gets real.  You fill out a mortgage application; pay the usual application fee and the mortgage company runs a credit report.  You will need to provide the lender with copious amount of documentation and they will take an in depth look at your finances.  Based upon all of this, the mortgage company can then determine the specific amount that you will be approved for.  They will provide you with a letter of pre-approval or conditional commitment in writing which can be given to agents.  This pre-approval gives you a better standing as a buyer and tells the seller that any offer you make is a serious offer that will not be contingent on obtaining financing.  Once you find a house, you finalize your mortgage application with the property in question.  Once you and the property have been approved, then you will receive a loan commitment and that is the final step in the loan process.  So remember, pre-qualification and pre-approval for a mortgage are not the same thing and relying only on the former may cause you to lose the home of your dreams.