Pre-qualified and pre-approved, what’s the difference?


Pre-qualified means a buyer has determined that he or she can afford to buy in a certain price range. This can be done by a REALTORĀ®, a banker, or by the buyer. Usually no documentation is required for a pre-qualification as it is simply a first, small step in the loan process.


Pre-approved means a bank has determined that a buyer may buy within a certain price range, and has documented credit, income, tax, employment, and other variables as required by their underwriter, and has approved the borrower for a loan.

Thorough pre-approval gives buyers an edge when negotiating with sellers and when competing with other buyers. Imagine if two offers were made on your home at the same time, one from a buyer with a pre-approval letter from a bank, and the other from a buyer who hadn’t been to the bank yet. Which buyer would you consider more “serious”? Even if the pre-approved buyer’s offer is slightly lower, as a Seller’s agent I almost always recommend negotiating the pre-approved buyer’s offer first because he or she is more likely to be able to close, whereas the other buyer might hit a “snag” just trying to secure financing.

When you put together a jig-saw puzzle, how do you do it? Do you start by flipping all the pieces pattern-side-up then finding the edge pieces? Most people do; however, it is possible to complete a puzzle without starting in this manner. The same is true with the home-buying process. It is best to start by making sure you can buy, and finding out for certain how much you can spend. Pre-approval does this for you, and much more.

Being pre-approved saves you time and stress during the contract process. Being pre-approved saves you time by eliminating showings in the wrong price range. Being pre-approved is courteous to the seller because it saves him or her time off the market with a buyer that doesn’t know if he or she can buy. Being pre-approved shows the seller you’re a prepared and thorough buyer.

There are no short-cuts to being pre-approved. If the bank hasn’t seen any documentation supporting your claims of income and expenditures, and hasn’t pulled your credit report, you’re pre-qualified at best. Pre-qualification will not have the same positive impact on a seller that pre-approval has. Some banks will prepare a “letter of pre-approval” without seeing any documentation. These letters often state such and can actually hurt a buyer’s negotiating power.