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Pre-qualified vs. Pre-approval: What's the difference?

Getting pre-approved or pre-qualified can be a great way to show sellers you're serious about buying a home. If you're looking in a competitive market, it can really help you stand out.

A helpful home buying tip: Before you start viewing houses for sale, it's important to understand the difference between these two first.

Pre-qualified

A home loan pre-qualification is something you can do yourself. It provides a good indication of what homes you can qualify for.

But, this is only a preliminary step in obtaining a loan. None of this information is verified. This is where pre-approval comes into play.

Pre-approval

Pre-approval tells sellers and agents that you're serious about buying a home. It:

  • Let's you know what's affordable up front
  • Shows sellers you're serious about buying
  • May speed up the home-purchasing process

With a home loan pre-approval in hand, your lender will have verified all the information you included on your application. This tremendously helps home sellers since they know that financing will not be a problem for you. (And it can place your name at the top of the list if their house has multiple bids!)

Note that this is only pre-approval though, not the final step. Lenders will require that you specify a property before locking the rate.

Home Buyer Tip

Use your home equity to reduce debt and taxes

If you're running balances on credit cards, you cannot deduct the high interest you're currently paying. But a home equity loan may offer much lower interest rates and it's tax deductible, which may save you even more. (Consult your tax advisor for details.)

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