This is an important question and decision to make during the home search process. Pre-Qualification is at the beginning stages of your search. This is when you speak with a lender about your overall financial picture which would include your debt, income, and assets. The lender will then give you an estimate of how much you can borrow. A good mortgage lender will also provide guidance on what you may need to do (if anything) to increase your borrowing power. This will help establish your buying time frame and ensure that you are searching for homes within your budget. If you search for homes prior to establishing a budget you may be disappointed if you are not able to qualify for the homes you are looking at.
Pre-Approval involves completing an official mortgage application and giving the lender the necessary documentation to perform an extensive check on your financial background and pull current credit reports. There may be an application fee involved to gather this information so it is important to ask for any fees involved upfront. After reviewing the documentation, the lender can Pre-Approve you for a mortgage up to a certain dollar amount. This is still subject to underwriting approval once you find a home and it is under contract.
In Arizona these terms are somewhat interchangeable. The form that your Realtor® will submit with the offer (also called the purchase contract) is an AZ Pre-Qualification Form. This form will indicate if you have spoken with a lender, and if that lender has done an extensive review of your financial and credit information. If you are “Pre-Approved” then it will provide more confidence to the seller that you can perform on the transaction. In a highly competitive market like ours it is important to have the strongest offer possible.