mortgage pre qualification pre approval

  • Getting pre-approved and getting pre-qualified for a mortgage are different, though some lenders use the terms interchangeably. 
  • Pre-qualification is based solely on information you submit — lenders don’t look at your background on their own — and is ideal in the early stages of the homebuying process for finding out how much you could borrow.
  • For a pre-approval, lenders verify your information and make a hard inquiry into your credit. The resulting quote then acts as an offer from a lender. 
  • Both can help you get started with your home buying planning and search, but are useful at different points. Pre-qualification often doesn’t involve a hard credit inquiry, which means it won’t ding your credit score.
  • Read more personal finance coverage.

I want to own a home, hopefully within the next year or two. It would be my first home, and even though I’m saving for it aggressively, I realized a few weeks ago that I needed to start zeroing in on how much I have left to save for a down payment, and how large of a mortgage I could be approved for when I’m ready. 

I needed a number to base my planning and saving on, even if it was just a loose figure. Getting pre-qualified for a mortgage helped me find out the loan amount I could be approved for, what my potential home-buying budget will be, and how much I still need to save for a down payment, without dinging my credit.

According to Andy Taylor, General Manager of Mortgages at Credit Karma, pre-qualification and pre-approval are different. “In a nutshell, it has to do with the amount of validation that’s taking place,” he tells me. Here’s what makes the two different, and when to use each.

Mortgage pre-qualification is an estimate, not an agreement

Pre-qualification is an estimate of how much you could be approved to borrow for a mortgage based on information you submit about your income, debt, and credit.

“The primary difference is in the level of validation and the amount of information that that’s provided by the person who’s trying to get the loan,” Taylor says. It’s not a hard offer, but it also doesn’t involve a hard inquiry to appear on your credit like a pre-approval does. 

It’s useful for anyone who is still determining their home-buying budget. “The reason you want that validation is that you want some level of certainty,” Taylor says. “Certainty that if you found that house, you could get that house, and certainty that you’re looking at the right level of homes.” Even if you’ve done your own calculations, a pre-qualification can give you a more precise figure on how much you can borrow, so you can make a more detailed budget and plan.

For me, that figure helped me get my down payment savings on track. It helped me calculate exactly what I need to put into my high-yield savings account each month in order to meet my savings goal.

It also helped gave me peace of mind that I can afford the home I’m envisioning for myself. I have a budget in mind, and after getting pre-qualified, I know the figures I’ve been thinking are on track with what I’ll likely be approved to borrow. Getting a pre-qualification gave me the number I needed, without having a hard credit inquiry show up on my credit report.

Pre-approval gives you a more solid offer, but you won’t want one until you’re ready to buy

Getting pre-approved means that a bank has greenlit your ability to purchase a home and get a mortgage, has verified the information you gave them, and is agreeing to lend to you under certain circumstances.

“For pre-approval, you’ve gone to a loan officer, you’ve shown them two months worth of bank statements, and you’ve shown them how much money you have saved for a down payment. You’ve showed them pay stubs and maybe tax returns so they can verify your income. And, you’ve had a hard credit pull so they can look at your credit,” Taylor says. “You’ve basically done everything that would typically go into getting the real loan.” 

A hard credit inquiry generally drops your credit score by a few points temporarily. When you’re not very far in your home-buying process, getting pre-approved probably isn’t necessary.

In my stage of the process, it wouldn’t be — I don’t want even a small dent on my credit score more than once, especially since I know I won’t use the pre-approval before it expires. While this will be right for me in the future, it’s not what I need now.

The term is sometimes used interchangeably

In my search to get pre-qualified, I realized many banks and lenders use this term interchangeably. Even though these forms says pre-qualifications, it wasn’t uncommon for me to start an application, only to find that the information made the application more similar to that of a pre-approval, including asking for permission to run a credit check. 

Taylor suggests there are two reasons for this: Firstly, banks want to make sure they’re working with the right person. “If you’re a lender, you want to make sure that you’re working with very qualified individuals. So they say, ‘this pre-qualification process is only going to take a few minutes,’ but in fact, it’s a pretty deep process once they’ve got you hooked,” Taylor says. “That helps them. Hopefully it will help you, too, as you’ll have more certainty the more information you provide.”

The second reason is simpler: It’s about marketing. “They’re used interchangeably because it’s difficult to explain the difference. Maybe even loan officers don’t necessarily know what that term is. It’s largely a marketing tactic,” Taylor says. 

It might seem clear-cut by definition, but it’s a gray area with many banks. I found it difficult to find a true pre-approval that didn’t require running a credit check, and the reality is that not every bank offers one. I found that Credit Karma offered both, and helped me do this hassle-free. Even if I don’t end up financing with the company in the future, it’s mainly about the numbers right now, and that’s the main reason to get pre-qualified, anyway.

Pre-qualification gave me just what I needed to know

I was searching for a number that could help me plan more accurately and know if the budget and neighborhoods I have in mind are reasonable. Getting pre-qualified helped me answer those questions, and gave me confidence that I’m headed in the right direction. It’s given my vision more clarity, and more confidence that I’ll be ready when the time comes to get a pre-approval.

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