Most real estate buyers have heard that they need to pre-qualify or be pre-approved for a mortgage if they're looking to buy a property. These are two key steps in the mortgage application process.

Some people use the terms interchangeably, but there are important differences that every homebuyer and real estate investor should understand.
• Pre-qualifying is just the first step. It gives you an idea of how large a loan you'll likely qualify for.
• Pre-approval is the second step, a conditional commitment to actually grant you the mortgage loan.

Pre-qualified doesn’t hold as much weight as pre-approval. Being pre-qualified provides you with a ballpark estimate of how much you can borrow based on unverified data the borrower provides to the lender. This is typically done for free over the phone or online. It doesn’t require providing a credit report.

Pre-approval provides a definitive answer as to how much someone can borrow as well as at what interest rate. It speeds up the buying process as the borrower has been pre-approved. Now, only the property has to be evaluated. Pre-approval requires the completion of an application, and the submission of various documents that will give the lender a clear picture of the borrower’s ability to repay a loan. Often, there is a fee associated with pre-approvals.