What pre-approval really means
The two terms get used interchangeably, including by people who should know better. They are not the same thing, and the difference shows up at the worst possible moment — when your offer is being compared against someone else's.
Pre-qualification is an estimate
You tell a lender what you earn and what you owe. They tell you roughly what you might borrow. Nothing has been verified. It takes a few minutes and it is worth about what it costs, which is nothing.
Pre-approval is a reviewed file
You provide documents. Someone examines them. Your credit is pulled and your income and assets are actually checked. What you get is a letter backed by a file that has been looked at — which is why a seller weighing two similar offers will take it more seriously.
Why sellers care
A seller accepting your offer is taking their house off the market. Their risk is that your financing falls apart three weeks in and they start over having lost their place in the season. A reviewed file lowers that risk, and in a close contest it can matter more than a slightly higher price.
What to have ready
- Recent pay stubs, generally covering the last thirty days.
- W-2s or 1099s for the past two years.
- Tax returns if you have self-employment or significant side income.
- Recent bank and asset statements.
- An explanation for any large or unusual deposits.
One caution
A pre-approval is not a commitment to lend. It can still change if your income, credit or the property itself turns up something unexpected. Which is the real argument for not opening new credit accounts or changing jobs between pre-approval and closing.