Should you be pre-approved or pre-qualified? What’s the difference?

Before you start looking for a home, consider getting a preliminary loan approval from your lender. There are two types of loans approvals available to consumers – pre-approval and pre-qualified. While both may put you in a potentially stronger buying position, getting pre-approved by the lender carries a bit more weight.

When you obtain pre-qualification for a home loan, you provide a lender with your approximate income, current debts, and important details from your credit history. Your lender will then calculate how much money you may be eligible to borrow prior to application for a loan. Your lender, if he is a mortgage broker, will also be required to provide you with a Conditional Qualification Letter, which determines your likelihood of obtaining a loan. However, all information submitted is subject to verification at the time the loan application is submitted.

When you get pre-approved for a loan, you actually fill out a mortgage loan application. After an extensive examination of your financial situation, your lender will commit, in writing, to fund your loan, pending a successful appraisal of the home and a few other conditions. Your mortgage broker will also provide you with a Conditional Approval Letter. Getting pre-approved for a mortgage typically enables you to move quickly when you find the home you’ve been searching for. It also lets a seller know you are serious and may prevent you from losing out to another purchaser who already has financing arranged. Having a pre-approved loan is the closest thing to buying with cash.

Source:  Texas Association of Realtors®