Which is better, a Pre-Qualification or Pre-Approval?

Terms like pre-qualification and pre-approval are words you often hear when you are looking to apply for a mortgage loan. Unfortunately, there's a world of difference between the terms pre-approved, pre-qualified or clear to close. If you've ever been confused by these titles, we'll bring you up to speed on how these terms differ and why a misunderstanding can mean disaster for borrowers.


Getting pre-qualified is the very first step in the mortgage process. This is a fairly easy process. The way to get pre-qualified is by supplying a bank or lender with your overall finances, including your debt, income and assets. After looking over the information a lender can give you an idea of mortgage amount you could possibly qualify for. This can take place over the internet or a phone call. However, this is without proof of income or credit check. Therefore, being "pre-qualified" is not a sure thing. For this reason a pre-qualified buyer is more likely to not carry as much weight as a pre-approved buyer who has been more thoroughly vetted.


Getting pre-approved is the next step, and is much more complex. You'll need to fill out an official mortgage application. During this process you will also supply the lender with documentation for an extensive check on your financial background and current credit rating. With pre-approval you will receive a conditional letter or documentation of your pre-approved purchase amount. This is much better when looking to purchase a home. This tells the seller that you are more than likely able to obtain an actual mortgage.

Clear to Close

To take things a step further, getting clear to close means all conditions of your loan have been met and the loan underwriter has given their approval. If you're buying a home and you're purchasing the home with financing, this is your goal!

Getting clear to close or at least pre-approval before you start to look for a home is important because you'll know in advance how much you can afford. This way, you don't waste time with guessing or looking at properties that are beyond your means. Getting this documentation for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won't be contingent on obtaining financing, which can save you valuable time. In a competitive market, this lets the seller know that your offer is serious - and could prevent you from losing out to another potential buyer who already has financing secured.