Video · 1:10
Pre-Qualified vs. Pre-Approved: What Is the Difference?
A pre-qualification is a quick estimate, often based on little more than a conversation with a lender. A pre-approval is the real thing: the lender pulls your credit, calculates your debt-to-income ratio, verifies your employment, and confirms your cash reserves. When you make an offer on a Charleston home, the pre-approval is what a listing agent takes seriously.
Key points
- Pre-qualified means a lender estimated what you might borrow, usually from information you shared and with little or no verification.
- Pre-approved means the lender checked your credit, calculated your debt-to-income ratio, verified your employment, and confirmed your cash reserves.
- Lenders do not all use the two terms the same way, so ask what was actually verified before you rely on the letter.
- Get a true pre-approval before you start making offers. As a listing agent, I do not give pre-qualifications much weight.
Transcript
What's the difference between pre-qualified and pre-approved? That's a great question. Pre-qualified can give you an idea of what you could qualify to borrow, but it's usually based on just a conversation with a lender. A lot of 1-800 mortgage companies will hand out pre-qualifications that will never hold up to an actual purchase of a property.
A pre-approval is more in-depth. The lender will typically run your credit. They will calculate your debt-to-income ratio, which is very important. They will verify your employment, and they will check to make sure that you have cash reserves. All of these are very important factors when determining your qualification level to purchase a home.
And when I'm a listing agent on a property, I don't even consider pre-qualifications, because they're so easy to get and based on almost nothing. So it's very important to have a qualified, creative lender actually generate a true pre-approval for you when you're about to make an offer on a home.
Transcript lightly edited for readability.
Keep reading
- Financing: current rates, a payment calculator, and a lender I trust
- How much money you need to buy a house in Charleston
- SC first-time homebuyer programs and down payment help
- VA loans for Charleston-area military buyers
Sources
- Consumer Financial Protection Bureau: how prequalification and preapproval letters differ, and why lenders use the terms inconsistently.
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