VIDEO: What’s the Difference Between Pre-Approval vs. Pre-Qualification?

Here’s the official guide to navigating two similar terms: pre-approval and pre-qualification.

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According to the Consumer Financial Protection Bureau (CFPB), there really is no difference between a pre-approval and a pre-qualification. Nevertheless, we still hear a lot of stories about the supposed differences between the two. For example, we hear people say, “Pre-qualification means we just talk to the person.”

Others say that pre-approval is where you actually pull credit, allowing you to go a little bit more in-depth with your analysis and run Fannie Mae’s underwriting system. Some then disagree with that and claim pre-approval is when you get documentation (pay stubs, bank statements, etc.). Well, to that, I’ve heard people say, “No, it’s only pre-approval when you send it to underwriting.”

As you can see, there are a lot of misconceptions floating around out there. Again, as far as the CFPB is concerned, it really just depends on who you’re talking to. In the industry, these terms have been used so interchangeably that Bank A’s pre-approval may be less documented than Bank B or C’s pre-qualification.

If you want to know the difference, ask your lender specific questions. Did you pull credit? Do you have documentation of pay stubs? Did you run Fannie Mae or Freddie Mac’s automated underwriting system (AUS)? Rather than going by the title of the letter and stressing about whether it says pre-approval or pre-qualification, focus on what specific things your lender did to generate that letter.

Each lender will use these terms differently, so right away get on the same page and make sure you’re speaking their language. If you have any questions about what’s involved in the pre-approval—or pre-qualification—process, give us a call or send an email. We’d love to help you.