Buying & Selling Houses

Pre-Qualifying vs. Pre-Approved: Know the Difference or Lose the Deal

5 Articles Written
Shocked Young Businessman Looking At Laptop In Office

Whether through a flipping show on HGTV or by simply browsing the internet for the best ways to build wealth, you have discovered that real estate investing is the best option for you and your financial future.

Let me just say, I think you are making a great decision.

Deals, Agents, and Lenders—Oh My!

Picture this scenario. It is one most newbies go through, and yes, I went through it myself.

You’ve racked up hours upon hours of research and knowledge by scouring the BiggerPockets Forums, reading the blog, listening to the BiggerPockets Podcast, and you have learned what strategy you want to execute in order to achieve financial freedom (or simply increase passive income).

You have chosen the perfect neighborhood—with the hipster coffee shops and active night life—where you can see young, athletic couples running throughout the day.

You’ve saved enough money for a down payment and have analyzed a few dozen properties using the BP Calculators. You know “enough” to figure out what a certain property will produce in income/profit.

You’re confident and feeling ready to buy your first investment property!

Kids bike with training wheels closeup

Related: 7 Life-Changing Lessons I Wish I Knew as a Real Estate Newbie

After weeks of waiting and searching the MLS for that perfect investment, it finally pops up, and you call your agent.

“Hey, Bill! I found a property. Let’s go check it out!”

A few hours later, you meet Bill at the house, and at this time, your stomach is full of butterflies from the excitement that this could be the one! You check it out, and all looks good. You tell Bill the magical phrase that all new investors long to say: “Let’s make an offer.” 

Bill says, "Awesome! All I need is your pre-approval letter from your lender, and we will submit our offer!"

You give Bill your pre-qualifying letter that your mortgage lender has given you, because it should be "good enough" (not knowing the difference).

You make the offer, and believe it or not, it’s accepted! However, the glory is short-lived.

You have no choice but to give up the property because your loan falls through. There goes that deal.


Now, this is incredibly common, and it actually happened to me. You see, there is a HUGE difference between “pre-qualifying” and being “pre-approved.”

If you haven’t gone through the process of calling a mortgage lender yet, it will feel intimidating. But believe me, it is not. You call up a lender that you have been referred to or have met on (or even via your local REIC). They will ask you basic questions such as:

  • What is your credit score?
  • How much is your income?
  • Do you have any recurring debt?
  • How much is in your bank account?
  • What and how much is the property you are looking at?
  • And a few other questions that you should definitely be able to answer.

Based on your responses (which should all be true and accurate), they will give you a quote on what you should be able to receive. They will draft a letter based on the assessed information, and this is known as your pre-qualifying loan amount.

Although this may seem like a great thing, and for a newbie it’s a huge step, you should also understand that all this is really saying is, “Here’s a number that really doesn’t mean anything and is only meant to keep you interested in working with us.”


This is what actually matters. Don’t bother sending in your pre-qualified letter. If you are serious and ready to make an offer that can be accepted to go under contract, you will NEED to be pre-APPROVED.

What is the difference? A pre-approval letter is an official quote from the lender saying they WILL loan you “X” amount for a property—whereas “pre-qualifying” is saying that they will possibly loan you “X” amount if everything you say has been checked and certified.

When it comes to being pre-approved, they will run a credit check (which will definitely be a shock to you if you are using Credit Karma to check your credit score).


Every lender I have talked to has told me you can expect a 20 to 50 point drop in your Credit Karma report when you find out what it actually is. And yes, this happened to me.

Also, they will require two years of tax returns. This one can be worked around a little bit if you have a lender that is willing to do some extra work.

Along with a credit check and tax returns they will request:

  • Pay stubs
  • Bank statements
  • A photocopy of your I.D.
  • Possibly your student transcripts if you are just out of college
  • And a few other items that your lender will specify

The whole process takes a day or two, but if you are ready to invest, it’s a step that you have to take. Especially in a hot market like we have here in Denver, Colo., if you aren’t pre-approved, you will be pre-removed. (That was a good one, right?)

Progress, Progress, Progress

When it comes to starting out as a newbie investor, the road is long and filled with lessons, errors, knowledge, and rewards at every corner.

The only true mistake you can make is not taking action. To be completely honest, as much as I have learned from BiggerPockets, I have learned even more by simply doing it.

Each phase will bring new obstacles, and each obstacle holds new knowledge and experience. It’s never ending and always rewarding (as long as you don’t repeat the same mistakes). Keep taking action and keep moving forward.

“The distance between your dreams and reality is called action.” —Unknown

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What steps have you taken in the past few weeks to land your first deal? What obstacles have you run into—and what have you learned?

Let me know your experiences with a comment!

Zach is our Social Media Manager on BiggerPockets and in charge of video production. He is a beginning investor looking to reach Financial Freedom through the power of real estate - helping those w...
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    Earl Minnis
    Replied about 4 years ago
    You guys need to find EXPERIENCED people to write these blogs of yours. This stuff is pretty comical and really of no use. So much of the information is inaccurate and for sure misleading and unrealistic. I’ve chimed in on many of these posts over the few months. It’s irritating to see so much bs. I have challenged Josh a couple of times to come to Santa Barbara at my expense to prove up these ideas he and others have talked about but never any response. This tells me he is obviously another one of ” he who knows how to-does. He who doesn’t – teaches” group. Today is a liberating day. I am unsubscribing from reading any more on BP from people who mostly don’t know their rear end from a whole in the ground about real estate. Most of the comments are plain old ” blowing smoke up each other’s ass” routine and telling the poster how great his ideas are and that they are so smart. You people have fun wasting each other’s time instead of doing deals. Have fun, Earl Minnis
    Zachary Gwin Rental Property Investor from Denver, CO
    Replied about 4 years ago
    Hi Earl, I am not sure where all the anger and hostility is coming from. Seeing how the post was titled “Pre-Qualifying vs. Pre-Approved” I would imagine such an experienced investor as yourself would already know the difference. In which case, you would have zero need to waste your time reading this. This post was written by a newbie (myself) for newbies. There is no need to leave negative comments simply because the article isn’t relevant to your current level of investing. You don’t have to unsubscribe seeing how the BP Blog is 100% free. Free for you to choose which posts you read and which ones you don’t 🙂 Hope you have a nice day! -Zach Gwin
    Scott Trench President of BiggerPockets from Denver, CO
    Replied about 4 years ago
    Hi Earl – we have millions of forum posts out there. The blog here is a more introductory part of the site, and tends to be made accessible to new investors. The things that new investors need to do are get their finances in order personally, pick up the language of real estate investing and finance, and become familiar with the parts of any real estate transaction and the ensuing work and management. The difference between pre-approved and pre-qualified is something that you (and even I, with my few short years of experience) takes for granted. It wasn’t even on Zach’s radar as a new investor. Earl, as I mentioned to you last time we spoke, if you think you could do better, we’d be delighted to have you contribute. But, it seems unreasonable to come on here and keep telling folks how terrible they are, how great you are, and how their contributions are a waste of time. If you can do it better, prove it. Our goal here is to help EVERYONE succeed in real estate. For some folks, that means getting out and doing every deal possible like a full-time investor like you considers investing. For many other folks, that means getting comfortable with buying their first property, or their first property that isn’t a primary residence. Guess what – a select few – a few thousand or maybe in the low five digits of folks are doing tons of deals, pretty much everyone else is like me and is building up their portfolio one property at a time while working their jobs. For folks with that goal, this stuff is useful and hearing it from a guy who offered on his first property is just as helpful as hearing it from a guy that’s 40 years removed from his first purchase. The discussions about building 100+unit portfolios – those aren’t relevant to the vast majority of first time investors or investors buying their second or third units. They take place elsewhere on the site – check out our forums for that. Zach – congrats on getting that first offer in. I remember how exciting that was for me, and no – I didn’t get my first offer accepted either.
    Ang Mast
    Replied about 4 years ago
    Earl is right, but only to a certain point. I got tired very quickly of hearing Brandon bloviate on web blogs…HOWEVER I did just what Zachary said I just started to ignore them. As for the articles ditto I read what interest me however I do step outside my interest and read articles on mobile home and vacation properties. Although I have a lot more experience than most bigger pockets bloggers I still learn from others experiences regardless of their investing level. Bigger pockets is here to help investors of all levels and is written by investors of all levels. So to Earl I would say instead of complaining and belittling folks why don’t you write some articles and bless us with your wealth of knowledge!! By the way I invest in the East Bay of Northern California.
    Zachary Gwin Rental Property Investor from Denver, CO
    Replied about 4 years ago
    Very well said, Ang! Thank you for your feedback and clarification. We are all trying to reach the same destination 🙂
    Kay Mends from Rosharon, Texas
    Replied about 4 years ago
    Hi Zachary Thanks for the article!… I am a new newbie…been reading a lot on bigger pockets, and wondered how to go about talking to the banks. This is helpful and has pointed me in the direction to go talk to a bank, and get this part started, prior to securing a property.
    Zachary Gwin Rental Property Investor from Denver, CO
    Replied about 4 years ago
    Hey Kay, Thanks for reading and commenting! From what i’ve been told/ advised it’s best to not work with the big name banks. I would suggest finding a lender through your sphere. Whether your agent recommends them or through BP (bonus points there). Attend your local REIC and meet people. Usually they will refer some of their favorite lenders. Try and gather a list of 3-5 lenders and call each of them up. They will ask you for basic information and will give you quotes. Whoever comes up with the best rates and whoever you feel you most comfortable with go with them. This does 2 things. 1) Let’s you know what properties you should actually be looking at. (I was searching for homes $100k out of my range before I knew what I was pre-approved for lol.) 2) Will make your offer truly count when you’re ready to pull the trigger. Feel free to PM if you would like to talk more! Best, Zach
    Lydia T. Wholesaler from Dallas/Austin TX
    Replied about 4 years ago
    Zachary, I think that this article is great information to people who are new to investing and just trying to learn from the mistakes of others. To the person with the super negative comments I dont seem to recall reading any articles written or posted by you. If you feel that the content here is so sorely lacking then perhaps you can put your pen(or keyboard) where your mouth is and write an article or two with content that YOU feel is going to be beneficial to the users on this site. Otherwise please keep your negativity to yourself. It is completely unnecessary. Thanks!
    Peter Kraft Flipper from Cedar Grove, New Jersey
    Replied about 4 years ago
    Not sure where all the negativity came from, but I learned from a bank today that they are not allowed to use the term “Pre-Approval” anymore, so when I called them about a “Pre-Qualification” letter I received from a potential buyer on a flip I just finished renovating, they assured me that they ran the credit, have pay stubs, etc. for the potential buyers that were issued their “Pre-Qualification” letter.
    Jeffrey Bower
    Replied about 1 year ago
    Great post on the difference for new prospective homeowners!
    Greg Clatterbuck Rental Property Investor
    Replied about 1 year ago
    Most banks don’t offer pre-approval letters anymore. They may call them pre-approval, however, you are not approved for the loan until you go to closing. There are a multitude of scenarios that can cause an “approved” loan to not close. If you’re on the commercial side, the loan is based on the specific property’s cash flow and expenses. I have had multiple conversations with my mortgage guy (everybody has a guy, right) regarding “pre-approval”. Every time I ask for one, we have the same conversation, “You know you’re not actually approved yet, right? Yeah I know, just need to make it look good for the seller”. The seller is happy because they have a fancy letter from a bank that states they will loan some amount of money.
    Kenneth Tinsley Investor
    Replied about 1 month ago
    This really helpful and straight to the point in my eyes.