Being pre-qualified or pre-approved for a loan are similar terms that are often used interchangeably. They should be an early part of your house-hunting process because they’re a good indication of how much you’ll be able to borrow. Once armed with that information, you’ll know how much you can afford to borrow toward your new home. Being pre-approved or pre-qualified also makes you more appealing to sellers because it shows you’re serious about buying a home and not just browsing, and that you’re likely to qualify for financing. This can be especially helpful in a competitive market.
Neither pre-qualification nor pre-approval alone will guarantee that you’ll get the loan – you’ll still be asked for more information after you’ve made an offer on a house and the seller has accepted your offer, but you will be further along in the loan process. Once you've gone through the final steps of providing more information and getting the home appraised, you should then get your final approval.
Although the two terms are almost identical and often used interchangeably, there can be some differences in the way lenders use them.
Generally, here’s how the two may differ:
Pre-qualification is faster to obtain and provides a ballpark estimate of the amount of loan funds that may be available to you. If you’re wondering about how much loan you’ll qualify for, a pre-qualification is a way to begin.
Pre-qualification doesn’t always require documentation of your financial history; it can often be self-reported.
Pre-approval is very similar but may take a few days to obtain, but it enables you to provide proof to home sellers that you have a conditional loan approval. If you’re ready to commit to a purchase, a pre-approval letter can help you or your Realtor ® negotiate with sellers.
It can be hard to know which one you need. You can work with your Loan Consultant on what makes the most sense in your local market. Whether you have a letter of pre-qualification or pre-approval, you’ll be able to show sellers that you are a serious buyer who’s ready to act.*
*Be sure to ask your Caliber Loan Consultant where you are in the process, as any documentation you may receive could use different terminology.