What is the purpose of a pre-qualification in mortgage lending?

The purpose of a pre-qualification in mortgage lending is to give borrowers an estimate of how much they may be eligible to borrow based on their financial situation. During this process, lenders assess the borrower's financial information, such as income, debts, and credit history, to evaluate their potential borrowing capacity. This initial step helps borrowers understand their price range for purchasing a home and empowers them to make informed decisions during their home-searching process.

Unlike a pre-approval, which involves a more thorough review of financial documents and can provide a more definitive amount, pre-qualification is typically based on verbal information and does not guarantee that the borrower will receive a loan. This distinction is important, as it underscores that pre-qualification is more about providing a general idea of eligibility rather than a commitment from the lender.