If you are in the process of shopping for a mortgage loan you might receive loan offers boasting that you are pre-qualified or pre-approved. Whats the difference? Here is what you need to know to make sense of these loan offers.

Pre-qualification involves getting a no-obligation quote from a mortgage lender. You provide basic information about your credit, assets, debts, and income and the lender provides you a quote without running your credit. This is the best way to comparison shop for a mortgage loan. Pre-approval means you have submitted a mortgage application and often paid an application fee to the mortgage lender. The mortgage lender will run your credit and verify your documentation. The lender is required to supply you a good faith estimate of all loan expenses at this point; however, you have not entered into a loan contract with the mortgage lender yet.

Pre-qualification followed by pre-approval is the smart way to shop for a mortgage loan. Taking these steps allows you to compare all aspects of the mortgage offers, not just the interest rate. Pre-qualifying for a mortgage will help you budget and avoid buying more home than you can afford, a common mistake made by many homeowners.

If you receive pre-qualified or pre-approval offers from mortgage lenders that you have not gone through the process described above with, it is simply a gimmick designed to make you think the lender has made some kind of exception for you. To learn more about finding the right mortgage while avoiding common mortgage mistakes, register for a free mortgage guidebook using the links below.