Pre-Approval vs. Pre-Qualification: What You Need to Know Before You Go Home-Shopping

by Jason Dean 

mortgageHere’s the scenario: You meet your Realtor outside of what looks like your dream home. As you walk in together, you instantly fall in love with the interior — it is the home of dreams!

You tell your real-estate agent that you want to make an offer for a little under the list price, and she asks , “How much are you pre-approved for?” You say you don’t know. Immediately, your Realtor’s wide and friendly smile disappears. She hands you the business card of a mortgage broker. The showing is over.

Meeting with a Mortgage Broker

Most people cringe at the thought of meeting with a mortgage broker. They see themselves sitting across a big mahogany desk from their stodgy, disinterested banker, but these mental images come more from TV and the movies, than real life. The reality is that mortgage brokers work in a highly competitive business, and the only thing to differentiate themselves from their competition is their customer-service skills. They need your business, and thus you are the boss — you have all the leverage.

Still, a lot of people are very timid about meeting with loan officers — especially if they have less than excellent credit. This leads them to go for pre-qualification, instead of pre-approval. What’s the difference? Read on…


Pre-qualification is based solely on what you tell the mortgage broker — your credit file is not pulled. Some people justify going for pre-qualification instead of pre-approval on the basis that credit inquiries damage their credit scores, but readers of Smart Money Daily understand The Larry Rule. Furthermore, it’s important to note that multiple inquiries for the same type of credit — i.e. a mortgage loan — do not hurt your credit score.


Pre-approval, on the other hand, relies on your credit score and verifiable income. When you are pre-approved for a mortgage, it means that the bank is guaranteeing to provide you with a mortgage for up to a maximum value, as per the terms of the pre-approval letter. Realtors, who are frequently burned by “window shopper” clients, will give you much better customer service if you are pre-approved for a mortgage — not only because they know you are serious about buying a home, but also because they know exactly how much house you can afford.

In Conclusion…

Obviously, it is best to get a letter of pre-approval from your lender. This will help your Realtor provide you with better service, and it will keep you from getting your hopes up if you come across a home that you just can’t afford. Staying on top of your credit report can help take the anxiety out of meeting with a mortgage broker, but in the end, it’s important to remember that mortgage lenders (and Realtors, too, for that matter) are in business to serve you, not the other way around.

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