What is the difference between being pre-approved and pre-qualified?

There is actually a big difference between buyers who are pre-qualified and those who are pre-approved. Lenders pre-qualify buyers and determine how much they can borrow based only on information the buyer has provided. The buyer still must fill out a loan application and go through the lender's approval process. If you are pre-approved, lenders have already done a credit check and verified employment and deposit. Pre-approval is a commitment to lend you a predetermined amount. The only piece missing is the lender's appraisal of the home to confirm its value.
  • November 09 2011 - Philadelphia
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Answers (11)

David covered it very well. An agreement of sale with a pre approval carries more weight than the same with a  pre qualification.

  • November 09 2011
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Profile picture for meadowcove
Pre-approval is similar to showing your cards to your opponent at poker. Not very smart when a seller knows how much you can afford.
  • November 09 2011
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Correct.

One other thing to note is that a pre-approval usually involves the lender checking the buyer's supporting documentation (i.e. W2s, bank statements, pay-stubs, etc.).

A pre-qualification typically does not call for all of that.

TG
  • November 09 2011
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Pre-qualifying is something a decent REA can do themselves. It takes four minutes and most phones have the necessary calculator functions. You will have to ask a few meaningful personal questions of the client. Some clients would consider this info private. I think those clients would be over dramatizing the facts. I'm not talking about REA's asking for SSN's, bank account numbers, and 401K statements. I mean the basics. How much income do you have? How much debt? Do you have at least X amount of money saved for down payment and transaction costs? Do you pay your bills on time, in general? To me any REA that isn't willing to ask, and asking, those type of questions, is wasting more peoples' time, than they are saving people time. And we all know time is money.

We need new language. Pre-qualified. Credit Approved. Credit and Asset Approved. Credit, Asset, and Product Approved. Credit, Asset, Product, and Transaction Approved. Maybe?

CAPT, as in put a cap on this deal.
  • November 09 2011
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 There are some key differences between prequalification and preapproval for a loan that you need to be aware of. Loan prequalification is a simple process. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. This can be done strictly on a verbal level or electronically over the Internet. The prequalified amount is based solely on the information you provide. In most markets, prequalified buyers usually hold little clout compared to preapproved buyers due to the fact that the information given during the prequalification process is not thoroughly investigated and therefore may be unreliable. Where a preapproved buyer is actually approved for a loan of a certain amount, a prequalified buyer is only told that they might be approved for a certain amount.

Pre-approval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount that you will be eligible for (depending on what type of loan you decide to go with). Being preapproved lets the seller know that you have gone through an extensive financial background check and there should be no unexpected obstacles to buying the home. You can see how being preapproved would be more attractive to a seller than just being prequalified.

  • November 09 2011
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Profile picture for sunnyview
There is a short article here that explains the difference between being preapproved and prequalified and a side by side breakdown of what is needed for each here.
  • November 09 2011
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The other responses have thoroughly covered the differences between pre-qualified and pre-approval.  Just to close the loop, the final step is the loan commitment that is issued by the bank when you've been approved and the house you want to purchase has appraised at or above the purchase price.  Your credit and income will also be checked one more time to make sure nothing has changed.
  • November 10 2011
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Profile picture for SoCal Engr
Since everyone else seems okay with a "everything's been said, but..."

From a consumer (seller) perspective...

A pre-qual is useless/meaningless/bird-in-the-bush.

A pre-approval carries some weight, and may actually identify a serious buyer.
  • November 10 2011
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Profile picture for sunnyview
The problem is that many lenders that I have run into will not or can not issue a true "pre-approval" without going partially through underwriting with a specific property.

I generally get a pre qualification letter after they run the credit and then submit the information W2's, pay stubs, all bank account, primary PITI info etc. at that time. Then, I update the statements when I have made an offer on a specific property.

As a seller, I at least want a prequal letter, but I really want to see more than a minimum down if I am choosing from more than one offer. If the only way that  buyer can buy is with a 0 down USDA or a 3.5 down FHA, their financing options are more limited and if anything goes sideways even a little the deal is dead.
  • November 10 2011
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Here is a video explaining the difference between pre-approved and pre-qualified.
[hotlink removed by Zillow moderator]
  • January 16 2012
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In essence, a pre-qualification is an opinion.  And, the opinion is only as good as the education of the person voicing the opinon.  

Many, many lenders will not do a full pre-approval for "to be determined" properties.  In this case, many mortgage consultants issue "pre-approval letters" based upon the automated underwriting findings of DU or LP.  The problem with this is that the computerized approval is literally "garbage in, garbage out".  If the income is not calculated correctly and/or the employment or assets do not fit acceptable underwriting guideline, the "approval" is worth less the paper it is written on.

I do not do pre-qualifications on any level.  I will not issue a opinion of qualification without a complete review of all supporting documentation.  Fortunately, my underwriters will fully review "TBD" properties and, therefore, I can issue full lender pre-approvals for all of my clients.

  • January 16 2012
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