What's the difference between pre-qualification and pre-approval?

Pre-qualification is an estimate based on what you report. Pre-approval is based on documents and a credit check, so sellers treat it as more reliable.

Does a pre-approval hurt my credit?

It involves a hard credit inquiry, which may lower your score slightly. Multiple mortgage inquiries in a short period are usually counted as one.

Can I be denied after pre-approval?

Yes, if your finances change, the property doesn't appraise or meet standards, or information can't be verified.

Mortgages & financing

Mortgage Pre-Approval

Also called pre-approval, pre-approval letter

In short

A mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.

Requires

Credit check and documents

Typically valid

About 60 to 90 days

Cost

Usually free

Not a guarantee

Final approval comes later

What the lender checks

For a pre-approval, the lender pulls your credit and reviews pay stubs, W-2s or tax returns, bank statements and your debts. It calculates your debt-to-income ratio and gives you a letter stating the loan amount, loan type and conditions.

Pre-approval vs. final approval

Final approval comes after you're under contract, once the property passes appraisal and title review and underwriting confirms nothing has changed. A new job, new debt or a large unexplained deposit can still derail the loan.

Pre-approval on distressed purchases

Bank-owned sellers commonly require a pre-approval letter or proof of funds with every offer, and some want a pre-approval from their preferred lender. Short sale files can take months, so your pre-approval may need to be updated before closing.

Example

Shopping with a pre-approval

A buyer with $7,500 monthly gross income and $500 in other debts is pre-approved for up to $340,000 with 10% down. They find a bank-owned home listed at $315,000 and include the letter with a $305,000 offer. The bank counters at $310,000, which still fits within the pre-approval.

Frequently Asked Questions

Related terms

MortgageMortgages & financingA mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.Debt-to-Income Ratio (DTI)Mortgages & financingDebt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments. Lenders use it to decide how large a mortgage payment you can afford.Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.ContingencyBuying & closingA contingency is a condition in a purchase contract that must be met for the sale to go through. If it isn't met by its deadline, the buyer can usually cancel and keep their earnest money.Earnest MoneyBuying & closingEarnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.PITIMortgages & financingPITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders use it to judge whether a borrower can afford a home.Loan-to-Value Ratio (LTV)Mortgages & financingLoan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

Learn more in the knowledge base

How to Get Pre-Approved for a MortgageGuide · 7 min readA pre-approval tells you, and the sellers you make offers to, how much a lender is prepared to lend after checking your income, assets and credit. This guide explains how it differs from pre-qualification, what to gather, how to compare lenders and what can change the answer before closing.How Much House Can You Afford?Guide · 6 min readThe right price is the one you can pay every month without strain and still keep savings for repairs and emergencies. This guide shows how lenders measure affordability, what they leave out, and how to build a budget that works for you.Proof of Funds and Pre-Approval for Bank-Owned OffersGuide · 6 min readBank-owned sellers usually want evidence that you can close before they will look at your offer. This guide explains what REO sellers ask for, how a pre-approval letter and proof of funds differ for financed and cash buyers, how to handle a seller's preferred-lender request and when to have each document ready.

A B C D E F H J L M N O P Q R S T Z

Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.