What is 'Pre-Qualification'
An initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Pre-qualification is a relatively simple and quick process of examining the potential borrower's income and expenses in order to generate an estimated borrowing range that they would likely be able to repay to the lender.
BREAKING DOWN 'Pre-Qualification'
It is important to note that the pre-qualification amount is not a guaranteed amount that would be receive from a financial institution if you applied for a loan but is simply an estimate, which can be used to gain an idea on what a person can afford to purchase. The pre-qualification process doesn't include a more thorough look into the credit worthiness of the borrower, such as accessing your credit report or score.
Pre-approval is a more in-depth assessment of the amount that a person can afford to borrow and is done by a financial institution that will state the maximum amount that it would lend to the borrower.