Pre-Qualification Vs. Pre-Approval for a Mortgage

There seems to be much confusion about the difference between getting pre-qualified for a mortgage and getting pre-approved for one.

The long and short of it it that a pre-qualification is really only good for the buyer when they are in the beginning stages of trying to figure out how much house they can afford to buy.  In fact a pre-qualification doesn’t even reqiure a buyer’s credit to be pulled.  The buyer only gives such information as how much they earn per year, what their credit card balances are, what their car payment is, and any other outstanding debts the borrower may have.  The mortgage broker then works up something called a debt to income ratio which then tells the buyer basically how much of a house they “should” be able to afford.  This in no way an approval for loan or mortgage.

However, a pre-approval goes a few steps further.  To obtain a pre-approval letter from a mortgage broker, they must obtain the credit report of the borrower/buyer as well as pertinent documents such as recent pay stubs, copies of tax returns/W-2’s, checking account statements, etc and upon further review determines whether or not the buyer is pre-approved for a loan.  This is something that should certainly be taken care of before going house hunting.  The main reason being that it tells the seller that the buyer is serious.  An offer with a pre-approval letter is likely to get more attention then without one and if a buyer is in a situation where there are multiple offers, that buyer just might get an acceptable contract because they went the extra mile.