Pre-Approved or Pre-Qualified?
While these two terms sound the same, they actually mean quite different things. So don’t make the mistake of confusing them.
A pre-qualification involves a lender gathering a significant amount of your financial information and offering you an estimated loan amount. In short, it’s not binding or set in stone in any way. A very crude way of putting it is that the lender basically filled out a mortgage calculator on your behalf. It’s nothing more than that.
A home seller may not accept your offer from you if you only have a pre-qualification letter — especially if another offer comes from someone with a pre-approval letter, vouching for their ability to secure adequate financing to purchase the home. Sellers want certainty that the person they choose to sell their home to can actually receive a loan and close the transaction.
A pre-approval, on the other hand, is the real deal. It involves filling out a mortgage application and the lender pulling your credit report. It’s a hard credit check, which may temporarily cause your credit score to drop slightly. The advantage is that you can literally use this pre-approval to make an offer on a house. If you’re pre-approved for $500,000, you can make an official offer for a house that costs $450,000 without it being contingent on securing financing.
As stated in the section above about a mortgage pre-qualification letter, securing a mortgage pre-approval letter might make your offer more attractive to the sellers, especially when compared to another potential buyer who does not have a pre-approval letter.