Getting pre-approved for a mortgage is not the same as getting pre-qualified, although the terms are often used interchangeably. They are actually very different with implications for both buyers and sellers.
‘Pre-qualified’ means that a prospective borrower has spoken to a lender (often just over the telephone, or via an online application form), and that based on information supplied by the borrower, the lender says that the borrower would probably be approved for a specific loan amount –- provided, of course, that the borrower’s information all checks out.
‘Pre-approved’ means that the lender has actually checked out the borrower’s information and commits to lend the borrower a specific amount – subject to the home being selected and any last-minute changes to the borrowers finances. There is no such commitment when a lender pre-qualifies a borrower. Many buyers think if they get pre-qualified to borrow a certain amount, they will be able to get a loan for that amount. It does not always work out that way. Once the lender gets down to verifying the borrower’s information, problems can crop up — income gaps, missed credit payments, undisclosed debt, etc. — and the lender is unable to make the loan.
By getting pre-approved, buyers eliminate these problems before they go out and make an offer on a house because the lender has already verified the information. You can house hunt in a very specific price range, you have the security of knowing you will get financing and the comfort of a streamlined, stress-free mortgage application process. Sellers, too, prefer to deal with a pre-approved buyer over a pre-qualified buyer because the pre-approved buyer is virtually certain of getting financing. There is no such certainty with a pre-qualified buyer, so sellers will often give preference to a buyer who is pre-approved.
Because a pre-approval is a commitment, it does take longer to obtain — roughly two weeks longer than a pre-qualification. You will also need to provide bank statements, income verification and pass a credit check. Pre-qualifications can be done in the same day, often right over the telephone or via email, and are based entirely on the borrower’s word. A pre-approval does not eliminate the official mortgage application process which you will still have to go through once you find a house and your offer is accepted. But you will have greatly reduced the amount of additional research, paperwork, and uncertainty of receiving your final mortgage approval.