Mortgage Pre-Qualification vs. Pre-Approval

January 5, 2023

What is the difference between having your mortgage broker run you a Pre-Qualification or a Pre-Approval?  Senior Loan Office Michael Schmit with Draper & Kramer Mortgage Corp. summarizes the differences below:

Mortgage Pre-Qualification

Pros:

-Soft credit pull that allows us to see liabilities and estimated credit score without a hard pull on credit.

-Minimal work to complete process and gets borrowers understanding of what they can buy.

-Full review of income documents.

Cons:

-No automated decision from underwriting.

-Should not be used to submit offers since the loan has not been approved through Fannie or Freddie.

-Is not a full review of assets and other factors that can sway a loan approval.

-Note: Every lender does pre-qualifications different – since there is no approval needed, some lenders may not even do a soft pull or collect income docs.  Make sure to call your lender when receiving a pre-qualification so you know what to trust!

Mortgage Pre-Approval

Pros:

-Automated decision from underwriting that the loan will be approved.

-Full review of all documents, including income & asset docs.

-Hard credit pull allows us to get qualifying credit score with all three bureaus.

-Used to submit offers with full security the loan has been approved.

Cons:

-More upfront work for the borrower.

-Hard credit pull lasts 90 days, so if home search takes longer, we will need to re-pull credit.

Summary

This is good information from Mike.  My opinion is, if you are just dabbling to see what you might be able to afford, look at the Pre-Qualification.  If you actually want to go out and be able to write a purchase agreement to buy a home, have the Pre-Approval done. It will make your offer stronger. For more questions on home buying, let’s talk.