As a home buyer, knowing the difference between being pre-qualified and pre-approved is an important step in the mortgage process. Making your decision on which one to choose starts with understanding the definition of each of those terms.
What does pre-qualified mean?
Pre-qualification is an informal way for a lender to review your financial information and estimate how much you may be able to borrow. You can be “pre-qualified” over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
What does pre-approved mean?
Pre-approval is a lender’s actual commitment to lend to you and carries much more weight with sellers than being pre-qualified. Being pre-approved involves assembling the financial records (without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying, putting you in a favorable negotiating position.