Mortgage qualification is the screening process for determining if a potential borrower will be able to repay the loan being requested.
Qualification should not be confused with pre-approval.
A pre-approved home loan is a lender’s commitment to lend to a borrower. While there’s no commitment in a qualification as qualified borrowers can still eventually have their loan request turned down.
(S – I) / I = R
S = Sales price
I = Invested capital
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A pre-approval refers to a lender’s commitment to offer a mortgage to a borrower before the borrower has purchased a property.
Pre-approval should not be confused with qualification.
The main difference between the two are that for a pre-approved loan, a home loan is guaranteed, while a pre-qualified loan has no guarantee.