Although being pre-qualified and pre-approved are both important factors to consider when taking the first step into homeownership, they are two separate terms!
Getting pre-qualified is typically the first step in the mortgage process. This is when the borrower provides a lender with their overall financial status, including debt, income and any assets. After calculating this information, a lender can give the borrower an estimate of the mortgage amount for which they qualify. This does not mean you’ve been approved for a loan, it simply indicates how much you can afford when purchasing a home.
Pre-approval goes a step further than pre-qualification. Generally, this process requires a mortgage application to be completed. The borrower will need to provide the lender with necessary documentation to perform a credit check and to verify their income. From this, the lender can determine the specific loan amount for which the borrower is approved. When being pre-approved you will receive a pre-approval letter from the lender stating how much you can spend when purchasing a home. Having been pre-approved usually helps when dealing with sellers and negotiating. This shows the sellers that you are able to afford their home and you are not wasting their time.