The Difference Between Pre-Qualified vs Pre-Approved

Category: Mortgages Purchase
Posted: 2/1/2021 | Read Time: 2min

When starting the exciting process of buying a home, potential homeowners may hear a lot of new words and phrases, such as “pre-qualified” and “pre-approved.” These are two very important steps that take place during a mortgage application process. Understanding these steps and how they differ is important, as knowing the difference between pre-qualified vs pre-approved can help decrease the amount of confusion in what can be an already overwhelming process.

Pre-Qualified vs Pre-Approved: What’s the Difference?

Although these terms are often used interchangeably, it’s important to understand the differences. 

 

A pre-qualification is an estimate of the potential loan amount a borrower could receive based on basic information required by the lender about the borrower. It is the process of a lender reviewing a borrower’s creditworthiness before loan approval. If a pre-qualified borrower decides to apply for a loan and seek pre-approval, the lender will require more information.

 

A mortgage pre-approval is an evaluation of a potential borrower by a lender to determine whether they can be given a loan or not and, if so, for what amount. A borrower can be pre-qualified and not receive pre-approval. 

 

Pre-Qualified vs Pre-Approved: What’s the Process?

Getting pre-qualified for a home loan is a quick and simple home lending process. Getting pre-approved takes time and requires important information, such as employment history, financial documentation and credit history.

 

Basic Information Needed for Pre-Approval 

The pre-approval process begins by the borrower sharing basic information, such as,

 

  • Name and date of birth
  • Social security number
  • Marital status
  • Number of dependents
  • Address history

 

Pre-Qualified vs Pre-Approved: Employment History

A borrower’s employment history is looked at during the pre-qualification process, but it is thoroughly considered during the pre-approval process, as lenders require the following information:

 

  • Employer’s contact information (current and past)
  • Dates of employment
  • Monthly income 

 

Pre-Qualified vs Pre-Approved: Monthly Income and Housing Expenses

Similarly, a borrower’s monthly income and financial situation are glanced at during the pre-qualification process, but it is thoroughly considered for pre-approval. During this process, lenders consider the following:

 

  • W2’s
  • 1099’s 
  • Real estate income
  • Bank statements
  • Retirement and brokerage accounts 

 

Pre-Qualified vs Pre-Approved: Loan Type and Terms 

A big difference between pre-qualified vs pre-approved is that you can get pre-qualified for a loan without knowing what specific loan you need. When it comes to pre-approval all the details are considered, such as,

 

  • Loan amount 
  • Loan terms
  • Interest rate

 

Pre-Qualified vs Pre-Approved: Property Information and Loan Purpose 

To get pre-qualified you don’t need to know details about what property you will purchase. During the pre-approval process, you do need to know the legal description of the property as well as the occupancy status (primary or secondary residence).

 

Pre-Qualified vs Pre-Approved: Assets and Liabilities

A borrower’s assets and liabilities are not considered when seeking pre-qualification. However, during the pre-approval process, lenders will check the following:

 

  • Checking and savings account balances
  • Life insurance
  • Stock, bonds, retirement savings and mutual funds

 

Getting Pre-Qualified and Pre-Approved for a Home Loan

Getting pre-qualified is a non-essential first step in the homebuying process, although it is common among first time home buyers. Getting pre-approved, on the other hand, is required to obtain financing for a home. While you can purchase a home without being pre-qualified, you must be pre-approved. The good news is, you can get pre-qualified and pre-approved today with Wyndham Capital Mortgage. 

 


Maggie joined the Wyndham Capital Mortgage team in November 2020 as a Content Strategist. She has more than six years of content creation experience, which includes launching WBTV’s digital brand Queen City Weekend (now QC Life) and garnering more than 1.1 million page views across her articles. With a love of storytelling, she hopes to bring that passion to WCM and the many families it serves. She resides in Charlotte, North Carolina, and can often be found at a coffee shop, latte in hand.

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