When you finally ready to make an offer on a house, the seller will want to know if you are pre-approved or pre-qualified for a loan. If this is your first time buying a house, you may be asking “What’s the difference?” or “Do I really need either?”. Today we dive into the difference between the two and which one you will need.

What’s the difference?

People will often say that pre-qualification is the initial step of the mortgage process, when the lender takes a look at your credit score and has a conversation with about your goals. Meanwhile pre-approval is when you take things a step further by verifying your pay stubs and tax returns.

In reality, the two terms are actually the same thing. The Consumer Finance Protection Bureau explains there isn’t much difference between the two terms. Depending on the lender that you go to, you will get a different definition.

Which one do you need?

Like mentioned before the two terms are used interchangeably so the end goal is the same. Both terms help provide to give sellers the confidence that you are a the right person to sell the home to. To get a better understanding, make sure that you consult with your lender to get their definition of  “pre-approval” or “pre-qualification.” Then speak to your real estate to figure out which term will make you more credible in your market.

No matter what your lender calls it, you will get a letter that states how much money they are allowing you to borrow. Keep in mind that being pre-approved doesn’t mean that you are absolutely guaranteed to receive the home loan. A lender will most likely require new documentation as well as do an appraisal of your new home before they can extend the loan.

So even though you have a pre-approval letter in your possession, this is not the time to run up your credit card, quit your job, or make any big luxury purchases. If there are any major changes to your finances or an increase to your debt, they will be noticed by the time you apply for a mortgage loan. You may have a pre-approval letter, but lenders aren’t committed. In the same vein, neither are you. Just because you get one pre-approval letter, doesn’t mean you have to stay with that lender. Don’t be afraid to look at all your options before committing.