Pre-Approved or Pre-Qualified: What's the difference when buying a home?

The terms pre-approved and pre-qualified are common jargon used in mortgage lending and real estate. Both terms are a part of the early home-buying process, but they do not mean the same thing.

The terms indicate how prepared a buyer is to purchase a home.

Simply put, the difference comes down to how thoroughly a buyer's financial profile has been vetted. Many realtors and real estate agents will not take clients shopping to buy a home without a pre-qualification or pre-approval. Differences between the two terms are below:

Pre-Qualification:

• Pre-qualification (often referred to as pre-qual) is an initial estimate of a buyer's ability to borrow funds for a home.

• It's based mainly on verbal / self-reported information

• Typically includes stated income, assets, savings, and credit

• Does not require supporting documents

• May or may not require a credit check. Abbott Mortgage Group will request a soft pull. A soft pull is free, looks at your TransUnion score, and doesn't hit your credit.

Pre-approved

• Pre-approval digs deeper. It's a more detailed evaluation of a buyer's financial profile.

• It's based on both verbal statements and supporting documentation. Supporting documentation may include:

• W2s

  • Paystubs

  • Tax returns

  • Bank or asset statements

• Typically includes a credit report

• Results in conditional review and is subject to final underwriting and property review

As a buyer, being pre-qualified or pre-approved provides benefits to all those involved in the transaction.

• For buyers:

• Clarifies purchasing power

  • Helps identify potential issues early in the process

  • Allows buyers to focus on homes within an appropriate price range

• For real estate agents:

• Helps guide buyers more accurately

  • Reduces the risk of contract issues related to financing

• For sellers:

• Signals that a buyer has taken steps to verify their ability to obtain financing

  • Increases confidence in the buyer’s offer

Both terms are useful in the homebuying process! Understanding pre-approval and pre-qualification helps navigate the home-buying process with clarity and preparation.