In real estate, pre-qualification and pre-approval are two stages in the process of obtaining a mortgage loan, but they differ in terms of their depth and reliability.

Getting pre-qualified for a loan with a local lender can help you determine what you can afford.  It’s often a cursory evaluation and doesn’t involve a thorough analysis of your credit report or any verification.  It also doesn’t carry as much weight as a pre-approval because it’s based on self-reported information.

A pre-approval is a more comprehensive process. You’ll need to provide documentation to support the information you’ve provided, such as bank statements, pay stubs, and authorization for the lender to pull your credit report.  Things such as your credit history, your income, your outstanding debt, monthly expenses, employment history, the type of mortgage you want, and the amount of savings you have can all impact your approved purchase amount.

A pre-approval letter demonstrates to sellers that you’re a serious buyer who has been vetted by a lender, potentially giving you an edge in a competitive real estate market.