What does pre-qualification refer to?

Pre-qualification is a preliminary step in the mortgage application process where a lender estimates how much a borrower can afford based on the information provided, such as income, debt, and credit history. This estimate is not a guarantee and does not involve a thorough investigation or verification of the borrower's financial status. It serves as a guideline for borrowers to understand their potential borrowing capacity, which helps them in their home search and budgeting.

Unlike formal loan approval, pre-qualification does not require completing a formal application or providing documentation. It helps both borrowers and lenders get an initial sense of what loan amounts might be feasible given the borrower's stated financial situation. This process is essential as it allows borrowers to approach the home buying process with a clearer understanding of their financial limits.