Pre-qualified Vs. Pre-approved and What You Need To Know

What’s the difference between pre-approval and pre-qualification? What are they anyway and why would you need one? To learn more about each of these important things, keep on reading.

What is Pre-qualification:

Receiving pre-qualification or being pre-qualified is often the first step in thinking of becoming a homeowner and it means that independently, a lender has decided that you have met their requirements for a credit opportunity through a soft inquiry check. If they agree you qualify, they will write a letter for you that basically says you are ready to begin looking for a home. This is what realtors look for as it will tell you what your budget is and that you are a serious buyer. Pre-qualification is basically a pretest. You will have to tell the lender (the bank) your basic information like your income, so they can tell you about how much you’ll receive for a house loan. Typically it won’t need to run your credit if you can tell them your credit score, and it also doesn’t need you to provide verification of your financial claims.



What is Pre-approval:

Pre-approval is very similar to pre-qualification but usually requires more documentation. The pre-approval is more “valuable” as the lender has run your credit score and verified documents and “approves” a specific loan amount. Sometimes you will have to take an assessment to see if you qualify for a loan. Your credit reports will be pulled by the lender and this will count as a hard inquiry and it can affect your credit score. If you have found a home that you really want, you’re going to want to be pre-approved rather than pre-qualified. If you’re pre-approved, you will be working to get a mortgage for your dream home.

What you should know:

What usually happens is that you begin by requesting a pre-qualification first so that you can begin house hunting. Once you have found a few houses you are seriously considering or would like to put an offer on, you would then get pre-approved.


Pre-qualification highlights:

  • You start this by going to the lender and making a request, often times the easiest thing is to go to your own bank.
  • Pre-qualification on its own doesn’t affect your credit score all that much. It will show on your credit reports that you applied, and that will sometimes affect your credit score if it is already low.
  • A pre-qualification will say “you might qualify” but that isn’t guaranteed that you will get the loan.
  • This is much simpler compared to pre-approval. It holds less weight and requires fewer documents.
  • The lender can reserve the right to deny you the loan at any time.
  • This is based on the information you give the lender and so it is a rough estimate on what you can and cannot afford.

Pre-approval highlights:

  • Pre-approvals weigh more than pre-qualification.
  • You’ll have to provide more documents including work history, bank statements, etc.
  • Overall, they are more respected than pre-qualifications.
  • The letter shows your realtor and seller that your lender (the bank) has already viewed your credit, income, assets, and other related documents and is prepared to loan you funds.
  • If you have pre-approval or you’re pre-approved you’re ready to purchase a home.
  • If you’re pre-approved it guarantees you’ll receive the loan. The specific terms and rated should already be in writing by the lender.


How does Pre-approval affect your Credit Score?

Being pre-approved cannot affect your credit score unless you apply. Then the application counts as a hard inquiry. A hard inquiry can take away some points on your credit score. Typically, these points are only taken away for a year.

What is a hard inquiry? A hard inquiry can take away a few points from your credit score but the points typically come back within a year or so, depending on the scoring model. Does your credit score need help? Read how to increase your credit score with a few simple steps! 

Want to learn more about home buying or how NeighborWorks of Western Vermont can help? Go to our website at

Author: Bailey Aines, NeighborWorks of Western Vermont part-time employee