To put it bluntly: The real estate market in Indiana has gone wild.

To a great extent, the surge in demands for residential real estate has been driven by a host of pandemic-related factors. Some people are looking to move away from congested urban spots, Others need a bigger house to accommodate the shift toward work-from-home, and some just want to take advantage of the record-low interest rates while they can.

Coupled with the fact that new construction has been down by as much as 80% in many areas and a dearth of pre-existing homes up for sale, the competition for the properties that are available is fierce.

Median sale prices have risen significantly in every county in the state, and it’s no longer unusual for even modest-looking homes to receive multiple offers right after listing. Some of those offers are even coming sight-unseen by buyers who are anxious that any delay in a bid could give someone else the chance to swoop in and snap up the home they want.

All of this is said to make one thing clear: Buyers need to be more prepared than ever to make a deal, and that includes making sure that their finances are in order. Savvy would-be buyers have probably heard that being pre-qualified or pre-approved for their mortgage can give them an edge, but those terms are far from interchangeable. One has significantly more clout than the other.

Knowing the difference between pre-qualified and pre-approved could be the key to getting the home of your dreams — or seeing it go to someone else.

What Does Mortgage Pre-Qualification Mean?

Pre-qualification is really just the first step in a mortgage application process. Done correctly, it can give you a fairly good idea of just “how much” home you can afford.

That can make it much easier to narrow your options and find a house that fits your budget. If you know, for example, that $450,000 is the upper limit on what you can afford, you won’t waste your energy on properties above that price range and pour your hopes into a $850,000 luxury home.

Pre-qualification also gives you the opportunity to feel out different lenders, talk about your goals and suss out any potential problems with your mortgage application that you may want to remedy before going any further. You can also ask different questions about mortgage options and learn more about the pros and cons of each for your situation.

The pre-qualification process is typically very quick. In many cases, it can even be done online or over the phone, and you can get your pre-qualification letter in a day or two. If you’re ready to start your home search without delay, that’s a very attractive feature.

  • Here’s the catch: Pre-qualification is based on the information you provide the lender about your overall financial health, including such things as your income, debts and available downpayment. It doesn’t involve actual verification of the information you provide or even a close look at your credit reports.

That means that there’s no solid commitment between you and your potential lender. While pre-qualification is the absolute minimum you need these days to make a serious offer on a house, that’s all it is: proof that you can probably qualify for a mortgage loan — as long as all of the information you provided the lender is accurate.

What Does Mortgage Pre-Approval Mean?

Getting pre-approved is a much more involved step in the mortgage loan process — but it results in a conditional commitment for an exact loan amount. In some cases, you may even be able to lock in an interest rate, which can also be an advantage to you.

To get through the pre-approval process, you have to fill out a mortgage application. You may or may not have to pay an application fee, so it’s wise to ask questions before you start. You will also have to provide the lender with your financial records, and you’ll have to go through a credit check.

Once you’re done, however, you will know the exact maximum dollar amount that particular lender is willing to loan you on a home — which means you can begin house-hunting in earnest with absolute confidence about what you can afford.

  • Here’s the catch: Pre-approval is, quite naturally, more time-consuming than pre-qualification. Some lenders also require an application fee, which can be somewhat costly, and you don’t want to have your credit pulled too often by a multitude of lenders. It’s wise, then, to ask plenty of questions of a prospective lender before you start the pre-approval process. Ask about fees, the possible interest rates and how long the process is expected to take once you start.

Do keep one other important thing in mind: As mentioned above, pre-approval is a conditional offer from your lender. Your loan could fall through if, for example, you have a major change in your credit score, debt-to-income ratio or a job change between the time you get pre-approved and the time you actually need the mortgage (since all of those things are factored into your creditworthiness).

The Big Difference Between Pre-Qualified and Pre-Approved in a Nutshell

So what’s the final word on the difference between mortgage pre-qualification and pre-approval?

Pre-qualification is a good sign that you’ve got the credit and means to get a loan, but pre-approval is much more of a sure thing. All other things being equal, if two would-be buyers each make an offer on a home, the seller has more reason to go with the one that has a pre-approval in their pocket over the buyer who is merely pre-qualified.

If you’re looking for more clarity, talking your situation over with an experienced realtor can often make it easier to pick the path that will eventually lead to the home of your dreams.