In a meticulous, often confusing process like Home Buying, it's vital for you to understand at least the basic terms. Sometimes real estate professionals and loan officers will use terms like pre-approved and pre-qualified interchangeably when talking about a home loan. They are not, however, the same thing.

Pre-qualification is an estimate of how much money a lender would be willing to loan you, based on a general assessment of your relevant financial information, such as employment status, overall income and estimated value of assets.

The pre-approval process requires the lender to perform a more in-depth investigation and evaluation of your creditworthiness, culminating in a tentative commitment for mortgage funding up to a specific amount.

Here are some more details on each of these to further distinguish these similar but not synonymous terms.

Pre-Qualification

This process begins with you either meeting face-to-face with a loan officer or talking with one over the phone. You'll provide basic information about your personal credit and finances, including any outstanding debts, total income and a potential down payment amount. This data is then used by the lender to provide you with a written estimate of how much you could comfortably afford per month for a mortgage.

There is neither a commitment nor cost associated for either party in a pre-qualification procedure. Its primary purpose is to give you a realistic perspective on how buying a home will impact your month-to-month household budget.

Most real estate professionals will tell you that it's best to make pre-qualification one of the very first steps in your home-buying journey, even prior to looking at houses.

Pre-approval

In order to get a pre-approval, and the tentative commitment that comes with it, you must provide your desired home loan lender with the actual documentation (usually in paper form) of your financial details (assets, debts, income, etc).

You can expect to pay a fee for this part of the process, mainly to cover the lender's expenses incurred by running a credit check, as well as verifying your employment data and financial records.

Your pre-approval is then officially acknowledged via a commitment letter containing the amount the lender is willing to extend to you for your new home purchase.

A pre-approval is neither a guarantee of future mortgage loan approval, nor is it a legally binding contract, meaning you still have the option of choosing another lender.