What is a "pre-qualification" in the loan process?

A "pre-qualification" in the loan process is an initial assessment of a borrower's ability to obtain a loan. This step typically involves a lender evaluating a borrower's financial situation based on information provided, which may include income level, assets, and debt. The goal of pre-qualification is to give the borrower an estimate of how much they might be eligible to borrow, helping them understand their budget and options in advance of moving forward with a more formal loan application.

This process differs from an official loan approval based on credit history and thorough financial assessments. Unlike the guarantee of funding, which requires a final loan approval bringing greater certainty, pre-qualification does not guarantee that the loan will be approved or funded. Additionally, it does not involve an in-depth review of financial documents, which occurs later in the process during formal underwriting. Overall, pre-qualification serves as a helpful step for borrowers to identify potential loan amounts based on preliminary information without the commitment required by a full application.