Pre-qualified vs. pre-approved: what each means

What does pre-qualification mean?

Pre-qualification comes from a quick conversation or online form. You tell a lender about your finances, and the lender estimates how much you might be able to borrow.

• How long it takes: Minutes to a day.
• Credit check: Often none, or a "soft" check that doesn't affect your score.
• What it's good for: Getting a ballpark price range and figuring out what to work on.
• The limits: Because the lender hasn't verified anything, the number can change a lot once real documents come in.

What does pre-approval mean?

Pre-approval is a closer look. You fill out an actual mortgage application, and the lender checks your information in pretty good detail.

What you'll usually need:

• Pay stubs from the last 30 days
• W-2s or 1099s from the last two years
• Tax returns, especially if you're self-employed
• Bank statements from the last two months
• A photo ID
• Information about your debts

Other things to know about a pre-approval

• Credit check: Yes. The lender will do a "hard" pull, which may lower your score by a few points for a short time.
• How long it takes: Often a few days, depending on how quickly you send documents.
• What you get: A pre-approval letter stating the loan amount and type you're approved for, as long as nothing changes and the home checks out. Letters are usually good for 60 to 90 days.

Why does pre-approval matter?

Sellers want to know an offer will actually close. A pre-approval letter shows a lender has already reviewed your finances. Making an offer without one could mean you get passed over in favor of someone who’s closer to a “sure thing.”

A lot of real estate agents also want to see a pre-approval, or at least a pre-qualification, before showing homes. Buyers also usually need to sign a written agreement with their agent before touring homes together.

At a glance

When do you need them?

• Six months to a year before buying: Get pre-qualified so you have an idea of your budget and know what to work on to improve your credit.
• One to three months before shopping: Get pre-approved. That way, your letter will still be current when you make an offer.

What happens after pre-approval?

Once a seller accepts your offer, your loan goes to underwriting. The lender will get the property appraised (and if it doesn’t meet the appraisal, you’ll need to do some negotiating), verify your job and earnings again, and go over updated documents. If everything checks out, you'll get final approval and move toward closing.

How to protect your pre-approval

Your approval is based on your finances at the time the lender looked at them. Until you close:

• Don't open new credit cards or finance big purchases, like a car or furniture.
• Don't change jobs without talking to your lender first.
• Don't move money around without a paper trail.
• Keep paying your bills on time.

Shop more than one lender

Getting pre-approved with two or three lenders lets you find the right one. Credit agencies treat multiple mortgage inquiries within a short window as a single one, so you can shop without really hurting your score.