Pre-Approved vs. Pre-Qualified: What Mortgage Shoppers Need to Know

Getting approval on a mortgage is a process with no shortage of moving parts. That's why residential mortgage consumers need to leave no stone unturned in figuring out where tripwires lie on the mortgage-approval landscape. One area where home buyers run into problems is failing to understand the difference between being pre-qualified for a mortgage and being pre-approved for one.

Before the Great Recession, mortgage approvals were like ice cream flavors at Baskin-Robbins—numerous and easy to get. But in the last five years mortgage lenders have significantly restricted their offerings, and borrowers need to be prepared for the tougher requirements or risk being turned down by banks and other lenders.

Just because you are pre-qualified for a mortgage doesn't mean you will get one. But when you are pre-approved your chances for a green light from a lender are greatly increased.

What your mortgage lender looks at
"In general, a lender who prequalifies a buyer discusses a buyer's credit, income and assets with them," said Michael Minervini, a real estate agent for Re/Max in Red Bank, NJ. "A lender who pre-approves a buyer runs their actual credit and verifies their income and assets. That's a major difference since agents and sellers view a pre-approval as a more firm start to the home-buying process."

Cal Haupt, president and chief executive officer at Southeast Mortgage, explained what the pre-approval process means to homebuyers once it starts rolling.

"Your loan would be submitted for preliminary underwriting, which normally takes no longer than 24 hours," Haupt said. "Your mortgage consultant would then provide you with a pre-approval letter that defines the loan amount you are approved to receive."

"Pre-approvals are normally good for a 120-day period, so it's important to begin your home search with your real estate professional as soon as possible after receiving your pre-approval letter," he said.

The difference between mortgage pre-qualification and pre-approval
According to David Hall, president of Michigan-based Shore Mortgage, a mortgage pre-qualification is an initial assessment of a potential buyer, and often it's not worth the paper it's written on.

But a pre-approval goes deeper and involves a more thorough look into your income and expenses, including a look at your credit score.

"Let's think in terms of the view from a plane," Hall said. "The pre-qualification is a 250,000-foot view, and a pre-approval is a closer-up, 30,000-foot assessment of the eligibility of a client to secure a loan."

To help you land your dream home, try a pre-approval service like the one featured on the Realtor.com individual listings pages. By checking the box that says, “I want to get pre-approved by a lender”, you’ll be connected with up to three lenders right away.

The importance of mortgage pre-approval
There's no harm in getting pre-qualified—it's a good gateway to buying a home. But to lock down that home, focus on getting pre-approved, Minervini said.

"Buyers should always get pre-approved only," he said, "And here's why: First, a buyer can confirm the sample monthly payment that they may own when they close, and they can get an idea of the home's price range. Then, they can determine if there are any potential unknown credit issues that may need to be addressed prior to purchasing."

Why you should know the difference
Getting square on pre-qualified versus pre-approved streamlines the entire home-purchase process.

"If all parties involved are aware of the distinction, it helps everyone play their role to the best of their ability," said Ted Rood, a senior mortgage consultant with Wintrust Mortgage and a contributor to Mortgage News Daily. "The listing agent who calls the mortgage originator to ask if the buyer's income and asset docs have been examined clearly understands the differences between pre-qualifications and pre-approvals."

On the other hand, the mortgage loan originator who deals with the real estate agent has a better grip on the entire process, by providing clarity on the firm's pre-qualification or pre-approval process, he said.

Even homebuyers can leverage the distinction between the two processes to help their own cause.

"Clients armed with this information can request a thorough pre-approval rather than a cursory pre-qualification, and play a role in ensuring the best possible handling of their transaction," Rood said.

The takeaway for homebuyers? Know the difference between being prequalified and pre approved, and focus your energy on accepting the former, but aggressively seeking the latter.

Do that and you've taken a huge step in buying the home of your dreams.

Realtor.com