Looking at homes without knowing how much you can afford can be a major waste of time for you and your real estate agent. Armed with misconceptions, many home buyers mistakenly think that pre-qualification and pre-approval for a martgage are the same thing. In reality, there is actually a big difference between the two and understanding the distinction can be the difference between having your offer accepted or rehected.
During pre-qualification, you verbally inform your mortgage lender of your overall financial picture, which can unclude your income, assets, and credit information. After evaluating this information, your loan officer can give you an estimate of what you qualify for. A pre-qualification does not include verifying the information you provide, nor an analysis of your credit report. Because of this, a pre-qualified buyer does not carry the same weight as a pre-approved buyer when making an offer on a home.
Pre-approval is when you complete an offical loan application and provide your loan officer with the necessary information to document and verify your income, assets, and credit information, Your lender wll pull your credit reports and look over documents such as bank statements and W-2s. From this analysis, the loan officer can tell you the specific amount for which you are approved for, and which loan programs might be the best fit for your unique financial situation.