Is It Better To Be Pre-Approved or Pre-Qualified?

Keys pre-approved-or-pre-qualified

A new survey of home sellers found 86 percent of them preferred a buyer who’s been pre-approved for a mortgage over one who’s pre-qualified. That’s the overwhelming majority and a clear indication that home shoppers should first get pre-approved for a loan before proceeding on their house hunt. But what’s the difference anyway?

 Well, pre-approval requires a more thorough check of your finances than pre-qualification does. That means, you’ll be asked to provide some documentation confirming your income, assets, debts, etc. It also includes a credit check. In other words, it’s a more detailed look at your financial situation and gives home sellers confidence that you’ll be able to close on time and without issue.

That’s why the overwhelming majority of those surveyed chose a pre-approved buyer over a pre-qualified one. The benefit for buyers is pro-approval gives them the ability to put in a firmer, faster offer when they find a home that fits their needs and lifestyle.

Information Needed to Get Pre-qualified and Pre-approved

The information you will need to provide to get pre-qualified for a mortgage:

  • Basic income information
  • Credit Check
  • Basic information about bank accounts
  • Downpayment amount and desired mortgage amount
  • No tax information required

The information you will need to provide to get pre-approved for a mortgage:

  • Copies of pay stubs that show your most recent 30 days of income
  • Credit check
  • Bank account numbers/two most recent bank statements
  • Downpayment amount and desired mortgage amount
  • W-2 statements
  • Signed, personal and business tax returns from the past two years

Pre-qualification Vs. Pre-approval Comparison

Benefits Prequal

You can start house-hunting knowing how much you might be able to borrow


You’ll be ready to make an offer with confidence—and gain a competitive advantage

Process Provide basic information to a lender and quickly get a prequalification amount After submitting documentation to a lender, you should receive a decision within 10 business days
Documentation    Answer questions for this process, plus a credit check Provide proof of financial details, plus a credit check


 Factors Involved with Getting Approved for a Mortgage

Even if you have been pre-approved for a mortgage, it isn’t an automatic final approval. Pre-approval is only the first step in the loan process and your underwriting can still be denied. Being pre-approved will make sure you have a good credit score, verify your income, and assure that you will be able to pay back the loan amount.

Once you’ve been pre-approved, your file must then go to the underwriter who will take a much deeper look into your financial stability.  The underwriter will review your loan scenario and supporting documentation to determine whether you qualify for the loan, with the following basic criteria in mind:

  • Your ability to repay the loan – Is your income enough to cover the new mortgage payment and all your other monthly expenses? Lenders use your debt-to-income ratio (DTI) and most lenders want your debt-to-income ratio to be 36% or less.
  • Your likelihood to repay the loan. Your payment history and credit score are indicators to lenders of your likelihood to make payments in the future.
  • The home’s value – The underwriter will look at the value of the home you are purchasing to verify that it meets or exceeds the purchase price and whether the loan-to-value ratio (LTV) fits within the loan program guidelines. With a conventional loan, most lenders require a loan-to-value ratio of no more than 80-95% (The higher your home’s value and the less you owe on it, the lower your LTV).
  • The source and amount of funds for your down payment – You will typically be required to pay private mortgage insurance (PMI), which increases your monthly mortgage payment if you have a down payment of less than 20%. The underwriter will review your information to estimate whether you have enough money to cover closing costs. Lenders also typically require reserves to cover your mortgage payment in case of emergencies or unforeseen events.

As you move forward, your income, debt, credit history, down payment, savings, home value, and loan program guidelines will all play a role in whether your mortgage application is approved.