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Mortgage pre-qualification and pre-approval: What’s the difference?

Mortgage pre-qualification and pre-approval are two ways you can better understand your homebuying budget. While the terms are often used interchangeably, it’s important to understand them both as you start your home search . Let’s review when to pursue each process.

What is pre-qualification?

Typically, pre-qualification relies on self-reporting information like your income, assets, debt and potential down payment to a lender. They can then estimate how much you could afford to pay for your new home. Your credit score won’t take a hit because there’s no hard inquiry involved, but this estimate doesn’t carry much weight when presented to a seller.

What is pre-approval?

For pre-approval, lenders will request documentation such as:

  • Pay stubs

  • W-2s

  • Residential history

  • Bank statements

  • ID and Social Security Number for a credit history and credit score check

Once verified, you may be eligible for a pre-approval letter that documents your approved loan amount and interest rate . This can give you confidence in your purchasing power and demonstrate to sellers that you’re a serious buyer. The process can take up to a couple of weeks, so allow extra time for this step .

Graphic showing the difference between pre-approval and pre-qualification. Heading, “Pre-approval or pre-qualification?”. Next to the Application heading it says pre-qualification is self-reported and informal whereas pre-approval requires paperwork (W-2, bank statements, SSN). Next to the Timeline heading it says pre-qualification is a quick review process, can be done over the phone where pre-approval review may take up to a couple weeks. Next to the Credit inquiry heading it says pre-qualification has no hard credit inquiry and says pre-approval has a hard credit inquiry. The Deliverable heading shows pre-qualification provides a general idea of how much home you can afford where pre-approval tells you exactly how much a lender will loan you.

Pre-qualified vs. pre-approved: What’s the difference?

There’s no universal definition for pre-approval or pre-qualification — they vary from lender to lender, so talk to yours about their specific process. Regardless of what a lender calls it, they generally offer one or both of these options:

  • An informal, self-reported process for an estimated loan amount

  • A formal process requiring paperwork and a hard credit inquiry for a more precise loan estimate

The pre-approval process with Ally Home falls into the first category — and can be completed in as little as 3 minutes. The second category describes Ally Home’s Verified Pre-Approval Letter (VPAL) process.

Ally Home’s pre-approval process 

With Ally Home , you provide your desired timeframe, income and assets to help us understand which loans you might qualify for. We’ll conduct a soft check on your credit history, which won’t impact your credit score.

If you’re looking to take your pre-approval a step further, a VPAL could help prove to a seller that you can afford the home. A VPAL can also let you knock out some paperwork in the mortgage process early on, so you’ll have fewer steps after your offer has been accepted and your contract is signed.

Does pre-approval guarantee a loan?

A mortgage pre-approval letter represents a commitment from your lender — but it’s not a guarantee that you’ll qualify for a loan. You still need to go through the mortgage-underwriting process to receive the actual funds, along with a third-party home appraisal and inspection .

Tip: Because pre-approval letters are non-binding, shop around for lenders: What seems like a tiny difference between interest rates now can add up over time. To minimize the effect on your credit score, try to apply for multiple pre-approvals within a short time span (usually 30 to 45 days) so they count as a single inquiry on your credit history. 

Knowing your budget is crucial when home shopping — and both mortgage pre-qualification and pre-approval can help.

Which is better: Pre-approval or pre-qualification?

Neither process is objectively better, and which one you pursue depends on where you are in the homebuying timeline. Pre-qualification is a quick way to find out your housing budget without impacting your credit score, so it’s a good first step.

With today’s fast-moving real estate market, pre-approval not only lets sellers know you’re serious about buying, but also that you’re more likely to be approved for a loan . Keep in mind that a pre-approval letter is generally valid for 60 to 90 days, so you should only take this step once you’re close to finding a home and prepared to make an offer.

What happens after pre-approval?

Once you have your pre-approval letter, you can use tools like ComeHome to search for homes that fit into your budget. When the time comes to make an offer , the letter will be included in your bid to sellers.

Get pre-approved today 

Knowing your budget is crucial when home shopping — and both mortgage pre-qualification and pre-approval can help. Once it’s time to put in an offer, you’ll be one step closer to landing the home of your dreams.

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