Prequalification vs. pre-approval: what’s the difference?
A prequalification is an estimate. A pre-approval means someone actually checked your credit, income and assets, and the strongest kind has already been through an underwriter. Here is how I explain the difference to buyers, and why it matters when you write an offer.
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Equal Housing OpportunityStraight answers from my live shows. Each one links to the moment in the video where I explain it, and each carries the date it was given.
What is the difference between prequalification and pre-approval?
A prequalification is a loan officer’s opinion of what you may qualify for. A pre-approval goes further: your credit, income and assets are reviewed, and the strongest version has been seen by an underwriter. Debbie Marcoux tells buyers to ask their lender, out loud, which one they are getting.
On her August 17, 2022 show, Debbie Marcoux drew the line plainly: a pre-qualification is a loan officer’s opinion, and a pre-approval is an underwritten loan commitment that comes from the underwriter, not the loan officer. The distinction matters because loan officers are human and every lender’s guidelines differ. A loan officer can misremember which lender allows what, and the buyer finds out in escrow, when switching lenders can change the rate and pricing. That is why she suggests a follow-up question for anyone told they are pre-approved: has an underwriter reviewed this file, or is this a pre-approval letter from the loan officer? Lenders do not use these words the same way, so the label on a letter matters less than what was actually checked. A file with credit pulled, income and assets documented, and an underwriter’s review behind it is the one that holds up once a buyer is under contract.
As of the live show on August 17, 2022. Lenders define prequalification and pre-approval differently; ask what your letter is based on.
Source: Debbie Marcoux, NMLS #237926, JMJ Financial Group, NMLS #167867, on Mortgage Mom Radio (August 17, 2022).
Does getting pre-approved hurt your credit?
Not in any meaningful way. On her March 6, 2024 show, Debbie Marcoux called it a myth: one mortgage credit pull can cover the pre-approval and the closing, and a single inquiry is not really going to move a score. Opening new credit cards is what tends to drop scores.
Debbie Marcoux’s explanation is practical. A lender pulls credit to pre-approve a buyer, and if the loan closes while that credit report is still valid, the lender does not need to pull it again. Credit reports cannot be shared between lenders, so each lender a buyer talks to pulls its own. Scoring allows for that: the Consumer Financial Protection Bureau explains that multiple mortgage credit checks within a shopping window are recorded as a single inquiry, because lenders know a borrower is buying one home. What does hurt is applying for new credit, such as credit cards or a car loan, right before or during the mortgage process. Her advice is to get pre-approved first and, if a second opinion is wanted, to get it inside the shopping window. Checking your own credit report does not affect your scores, and it is worth reviewing for errors before applying.
As of the live show on March 6, 2024. How inquiries are counted depends on the scoring model; see the CFPB link below.
Source: Debbie Marcoux, NMLS #237926, JMJ Financial Group, NMLS #167867, on Mortgage Mom Radio (March 6, 2024); Consumer Financial Protection Bureau, “What happens when a mortgage lender checks my credit?” Read the CFPB answer.
When should you get pre-approved when buying a house?
Before you start touring homes. Debbie Marcoux calls looking at houses first a myth: get pre-approved, learn your price range, down payment and closing costs, and then shop. Getting fully approved can take a couple of weeks, and a home you love can sell in that time.
Debbie Marcoux has made the same point on more than one show. On August 17, 2022, answering a relocating buyer, she said to always get pre-approved before looking, whether moving across the country or across town. There are two reasons. The first is timing: pulling together a full pre-approval can take a couple of weeks of work, and a buyer who finds the right house first may watch it sell while the paperwork catches up. The second is price. Buyers often assume the neighborhood average is their price, and it may not be; they may also qualify for considerably more and be looking in the wrong place. Payment estimates on listing websites are not the same as a loan officer’s numbers, so a buyer can fall in love with a home whose real monthly payment is higher than expected. Knowing the number first turns house hunting into shopping within a budget.
As of the live shows on August 17, 2022 and March 6, 2024. How long a pre-approval takes depends on how quickly your documents come in.
Source: Debbie Marcoux, NMLS #237926, JMJ Financial Group, NMLS #167867, on Mortgage Mom Radio (August 17, 2022; March 6, 2024).
Why does a seller care whether a buyer is pre-qualified or pre-approved?
Because the seller wants a sale that closes. On her March 6, 2024 show, Debbie Marcoux said the highest offer is not always the strongest: a pre-qualification instead of a real pre-approval, stretched qualifying or no proof of assets can make the bigger number the riskier contract.
When a seller has more than one offer, the real question is which buyer is most likely to reach the closing table. Debbie Marcoux’s advice to sellers is to have their agent call the loan officer behind each pre-approval letter and understand what stands behind it. A buyer who is only pre-qualified has not had income, assets or credit verified in the same way, so the financing can fall apart in escrow, and the seller’s plans fall apart with it. For buyers, the same lesson runs in reverse. Be completely pre-approved, have bank statements ready to show the down payment funds, and make the offer the one the seller trusts. On her August 17, 2022 show she added that walking into a deal knowing an underwriter has already reviewed the file removes the risk of learning about a guideline problem in the middle of escrow.
As of the live shows on March 6, 2024 and August 17, 2022. Offer strategy depends on your market; talk it through with your agent.
Source: Debbie Marcoux, NMLS #237926, JMJ Financial Group, NMLS #167867, on Mortgage Mom Radio (March 6, 2024; August 17, 2022).
What happens to your pre-approval if you move to another state?
It only carries over if your lender is licensed in the new state. On her August 17, 2022 show, Debbie Marcoux explained that with a lender licensed in one state, a buyer who switches states starts over: a new lender, a new application, a new credit pull and every document sent again.
Most loan officers hold a license only in the state where they live. A buyer who gets pre-approved for one state and then decides on another may find that none of the work transfers, because the first lender cannot lend in the new state. That means a new application, another credit pull, and pay stubs, asset statements and identification sent all over again, often while the buyer is also trying to line up an agent in an unfamiliar market. Debbie Marcoux’s advice for relocating buyers who have not settled on a destination is to start with a loan officer licensed in several of the states under consideration and to share the whole list at the start. She is licensed in 14 states, listed at the bottom of this page. Her full episode on relocating covers what to research before choosing where to buy.
As of the live show on August 17, 2022. Licensing is by state; verify any loan officer on NMLS Consumer Access.
Source: Debbie Marcoux, NMLS #237926, JMJ Financial Group, NMLS #167867, on Mortgage Mom Radio (August 17, 2022).
Which one do you actually have?
Lenders do not all use these words the same way, so go by what was checked, not by what the letter is called. Ask your loan officer which of these three you are getting.
- What it is
- A loan officer’s opinion of what you may qualify for.
- Based on
- What you tell the loan officer, and sometimes a credit check.
- Who reviews it
- The loan officer.
- Good for
- A first look at your price range before you gather paperwork.
- What it is
- A letter based on your credit, income and assets actually being reviewed.
- Based on
- Your credit report and your documents: pay stubs, tax forms, bank statements.
- Who reviews it
- The loan officer, usually with the lender’s automated underwriting.
- Good for
- Shopping for a home and writing offers with a real price range.
- What it is
- A pre-approval whose file an underwriter has already reviewed.
- Based on
- Your full documented file, before you have a property.
- Who reviews it
- An underwriter, not only the loan officer.
- Good for
- Competitive offers, and fewer surprises once you are in escrow.
What do you need to get pre-approved?
A real pre-approval needs your documents up front. I ask for a lot at this stage on purpose: it keeps underwriting conditions from landing on you in the middle of escrow. Exactly how many months or years of each I need depends on your loan program, and I will tell you for your file.
- Income.
Recent pay stubs and your W-2s. If you are self-employed, your personal tax returns, business returns if you own a significant share of the business, and a year-to-date profit and loss statement.
- Assets.
Bank statements for the accounts your down payment and closing costs come from, and for retirement funds the most recent statement plus the plan’s withdrawal terms.
- Identification.
A driver’s license or other government-issued ID.
- Permission to pull credit.
One mortgage credit report can often carry you from pre-approval to closing.
Know your number before you shop.
Start with a quick prequalification, or go straight to a full application and I will tell you exactly what I need.
My episodes on getting pre-approved.
Each is a live show with key takeaways, chapters and the listener questions I answered on air. Rates and program terms in older episodes are a snapshot of that week, not current terms.
Moving To Another State? What Happens To Your Pre-Approval
Pre-qualified vs. fully underwritten, why to get pre-approved before you shop, and what happens when you change states mid-search.
Real Estate Myths Debunked
Why touring homes is not step one, whether a pre-approval hurts your credit, and why the highest offer is not always the strongest.
How to Buy a House, Step by Step
The full workshop, including exactly which documents go into a pre-approval file and why I ask for them up front.
Debbie Marcoux, Mortgage Loan Originator, NMLS #237926. Mortgages are originated through JMJ Financial Group, NMLS #167867. Office: 2150 Kiowa Blvd N, Suite A-108, Lake Havasu City, AZ 86403. Licensed in Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Nevada, North Carolina, Oregon, Tennessee, Texas, and Washington. Verify any license on NMLS Consumer Access.
Equal Housing Opportunity. This page is general education about prequalification and pre-approval. A prequalification or pre-approval is not a commitment to lend, a loan offer, or a rate quote. Loans are subject to credit approval, verification and underwriting; terms and conditions apply. Program availability, guidelines and documentation requirements vary by lender, program, property and state and change over time. Debbie Marcoux is not a financial advisor; please consult qualified professionals about your individual situation.
Sources. Written by Debbie Marcoux, NMLS #237926, from her live shows on Mortgage Mom Radio (episodes linked above, each dated). Credit inquiry background: Consumer Financial Protection Bureau, what happens when a mortgage lender checks my credit. Last reviewed .
