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Pre-qualification, pre-approval, pre-commitment… Which is which?

We know that financing terms can get confusing, so today we want to break down a few common terms for you. Pre-qualification, pre-approval, pre-commitment… which is most likely to help you stand out among multiple offers on a home?


What is a Pre-qualification?

A pre-qualification is the most informal option for a borrower to consider when working with a lender. A borrower can review his or her income, assets, and debt over the phone with a loan officer, and the loan officer will tell the borrower how much of a mortgage he or she will likely qualify for. The pre-qualification is not legally binding for the borrower or lender; rather, it is a recommendation for the ballpark mortgage amount that the borrower could likely afford.

With a pre-qualification, the loan officer does not actually review the borrower’s credit report, which is an important step in moving forward with official financing.

A pre-qualification is the least impressive option to a seller who is looking for a serious home buyer.

What is a Pre-approval?

A pre-approval shows more of a commitment than a pre-qualification to a home seller. A pre-approval means that the loan officer has reviewed the borrower’s financial information, including:

  • W-2 Statements
  • Current Paystubs
  • Recent Tax Returns
  • Proof of Income for Spouse/Partner
  • Bank Statements
  • Credit Report

A pre-approval shows that a borrower is legally qualified to borrow up to a certain amount of financing. It is not binding, but it shows a home seller that the borrower/buyer is at least committed enough to have gone through the process of a pre-approval.

What is a Pre-commitment?

The most impressive option of the three (to a home seller), and the most intensive, is a pre-commitment. With a pre-commitment, the borrower has submitted a pre-approval application, and an underwriter has reviewed the borrower’s application and determined that the borrower will definitely qualify for a specific loan amount.

A pre-commitment letter is proof that a borrower will qualify for a set amount of financing, and it also outlines what type of loan, the loan terms, etc.

With a pre-commitment letter, a buyer essentially is saying to a seller, “I am ready to buy your house.”

How long does it take to get a pre-qualification, a pre-approval, or a pre-commitment?

Timing varies from lender to lender, as well as the borrower’s availability and if they already have all of the necessary documents on hand.

Generally, a pre-qualification can take up to an hour; a pre-approval can take up to a day; and a pre-commitment can take up to a week.

Want to learn more about mortgages and financing options? We’re happy to put you in touch with one of our trusted lender partners. Just email us!