Pre-qualification is the first step of the mortgage process. It is a cursory look at your financial situation, which can be done relatively quickly online or over the phone. During pre-qualification, you’ll be asked to provide the lender with basic information about your income, assets and debts. The lender will then perform a credit evaluation, giving you a ballpark estimate of how much money you may be able to borrow. Remember, a pre-qualification is based on the information you provide to the lender that has yet to be verified.
Loan pre-approval is more involved and in-depth than a pre-qualification. For starters, you will need to complete a mortgage application. A full financial background check will be performed with an underwriter reviewing your credit report, pay stubs, bank statement, tax information, assets, obligations, etc. After assessing your creditworthiness, the lender will issue a pre-approval letter telling you what loan amount you are qualified for. At this point, you can shop for a home with a defined price range in mind. With a pre-approval, your loan depends only on the home appraisal, as well as your financial situation.