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Pre Qualified vs Pre Approved, Is It Better to Pre-qualify or Get Pre-approved?

Pre-qualification is a quick estimate of how much you might borrow for a mortgage, while pre-approval is a more detailed and trustworthy commitment from a lender.

by Tamilchandran

Updated Dec 23, 2023

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Pre Qualified vs Pre Approved, Is It Better to Pre-qualify or Get Pre-approved?

Pre Qualified Vs Pre Approved

In the realm of mortgage applications, the distinction between being pre-qualified and pre-approved holds paramount importance for prospective homebuyers. Pre-qualification is the initial step, where buyers provide lenders with their financial details, offering an estimate of the loan amount they might qualify for.

This process, typically conducted over the phone or online, is swift but lacks in-depth scrutiny of credit history or financial standing. On the other hand, pre-approval signifies a deeper commitment from the lender. To attain pre-approval, buyers must complete an official mortgage application and undergo a thorough credit and financial background check.

This meticulous evaluation results in a specific loan amount, often with detailed interest rate information, granting buyers a significant advantage when house hunting and negotiating with sellers. While pre-qualification initiates discussions, pre-approval provides a concrete and advantageous position for serious homebuyers.

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What is the Difference Between Pre Qualified and Pre Approved?

When distinguishing between prequalification and preapproval, key differences emerge in the criteria, credit inquiry type, information reviewed, guarantee of approval, accuracy of assessment, purpose, and approval timeline. Prequalification involves a soft inquiry, assessing basic information like income and credit history, and does not guarantee approval. Here are the key differences between prequalification and preapproval:

Criteria

Pre qualification

Pre Approval

Credit Inquiry Type

Soft inquiry (does not affect credit score)

Hard inquiry (may affect credit score slightly)

Information Reviewed

Basic information like income and credit history

Detailed review of tax returns, income, bank statements, credit

Guarantee of Approval

Does not guarantee approval for a loan or credit card

Does not guarantee approval for a loan or credit card

Accuracy of Assessment

May be less accurate than pre approval

May be more accurate due to comprehensive review

Purpose

Helps assess options before applying for credit

First step toward securing a loan approval letter, especially for mortgages

Approval Timeline

Instant results

May take days for manual review to complete

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What Does Pre-Qualification Mean?

Pre-qualification refers to the initial step in the process of applying for credit cards or loans, initiated by the consumer. During pre-qualification, individuals provide essential financial details, such as income, housing expenses, and assets, to a lender. This information is then reviewed, typically through a phone conversation or an online survey.

Based on this preliminary assessment, the lender offers a conditional approval, indicating whether the applicant is likely to be approved and providing a glimpse of the specific products or terms they could qualify for if they decide to proceed with the application.

It's important to note that pre-qualification offers valuable insights into one's potential eligibility, but it is not a guaranteed approval, as the final decision is contingent upon a more thorough evaluation during the formal application process.

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What Does Pre Approval Mean?

Preapproval signifies a preliminary evaluation conducted by a lender to assess a consumer's eligibility for a financial product, such as a loan or credit card.

During this process, the lender initiates an inquiry into the individual's creditworthiness, typically requesting a list from a credit reporting bureau of individuals meeting specific criteria, such as a certain credit score and clean payment history. If a person meets these requirements, the lender issues a firm offer of credit, which is guaranteed under the Fair Credit Reporting Act.

However, the final approval is contingent upon a thorough credit check, ensuring the applicant's credit profile has not significantly changed since the pre approval was granted. This process allows lenders to make targeted offers to potential customers while providing applicants with a clear understanding of their eligibility status, helping streamline the subsequent application process for financial products.

Is It Better to Pre-qualify or Get Pre-approved?

When deciding between pre-qualification and pre-approval for a credit card application, it's essential to recognize that neither option is inherently superior. Both processes involve a hard credit inquiry, and rather than viewing one as better than the other, individuals should see them as valuable tools for comparing credit options.

Both pre-qualification and pre-approval provide insights into potential offers, allowing applicants to make informed decisions based on their financial circumstances and preferences.

Moreover, applicants should carefully review the terms and conditions associated with the credit card offer both before and after approval. It's crucial to be aware that the terms initially presented might differ from the final terms, governing the usage and responsibilities tied to the approved card. Understanding these specifics is vital, ensuring applicants make choices aligned with their financial goals and capabilities.

Pre Qualified vs Pre Approved - FAQs

1. What is the main difference between pre-qualification and pre-approval?

Pre-qualification offers an estimate based on basic info, while pre-approval involves a detailed credit check and financial review.     

2. Does pre-qualification guarantee loan approval?

No, pre-qualification is a preliminary assessment and does not guarantee final approval for a loan.

3. How does the credit inquiry type differ between pre-qualification and pre-approval?

Pre-qualification involves a soft inquiry (no impact on credit score), while pre-approval involves a hard inquiry (may slightly affect credit score).

4. Is pre-approval a time-consuming process?

Yes, pre-approval may take days due to the comprehensive review of financial documents and credit history.

5. Should I rely solely on pre-qualification or pre-approval when house hunting?

It's beneficial to seek pre-approval as it provides a stronger indication of your financial readiness and credibility to sellers.

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