Pre-Qualified or Pre-Approved – What’s the Difference?

Let’s join a conversation between two neighbors in the suburbs of Anytown, USA, already in progress…

       “Hey, Michael, the lawn is looking great. You’re really enhancing the curb appeal of your place.”

“Thanks, Jessica. I do love working outdoors. But to tell you the truth, I really am trying to give the house a curb appeal upgrade.”

“Oh yeah? Why is that?” asks Jessica.

“It looks like we may be selling soon—we were just pre-approved for a mortgage loan through our credit union!”

“That’s great! While I’ll certainly miss having you in the neighborhood, getting pre-qualified for a home loan is the right way to go.”

“Thanks, but just to clarify, we were pre-approved, not pre-qualified.”

“What’s the difference? They’re both the same thing, right?”

Not quite. As illustrated in this conversation between Michael and Jessica, pre-qualification and pre-approval are often considered to be the same thing in the eyes of potential homebuyers. However, it’s important to know the differences between the two when working your way toward homeownership. It’s not uncommon for various lending institutions in the same areas to differ in their own definitions from place to place, some providing pre-qualifications while others get you pre-approved. You need to know the differences.

To help you during your homeownership journey, here are some of the key differences between the two:

 Pre-Qualified

  • Following a member inquiry, the member is provided with an estimated maximum loan amount based on the information they provide.
  • The estimated loan amount provided is NOT based on actual documentation supporting the member’s income and assets information.

 Pre-Approved

  • Pre-approvals are used when active buyers are ready to make a confident offer soon and want to gain a competitive advantage.
  • The member completes a mortgage application with disclosures as a TBD (address To Be Determined) loan.
  • The member supplies full income, credit and asset documentation.
  • Self-employed members also supply two years tax returns, year-to-date profits and losses and bank statements.
  • The member needs to have at least two credit scores and established tradelines.
  • Pre-approvals are provided after all the member’s documentation has been reviewed and initially approved or deemed eligible.

The differences are evident—while similar in the minds and eyes of many credit union members, you need to make sure you understand those differences.

Considering most credit union members only go through the mortgage process a handful of times in their lives, things like the differentiating between pre-qualified and pre-approved can be confusing. Remember that your trusted credit union is always here to help answer your questions and make the most out of your pursuit of the American dream of homeownership.

 

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 This educational article is provided as a courtesy by your credit union’s home loan partner, myCUmortgage. For information regarding your unique home loan needs, please work with your credit union loan officer.