In mortgage lending, what does 'pre-qualification' refer to?

Pre-qualification refers to an informal assessment of a potential borrower’s creditworthiness. During this process, the lender evaluates the borrower’s financial situation, which may include their income, debts, and credit score, but it does not involve a formal application or a deep dive into financial documentation. The pre-qualification can often be done quickly and is typically based on self-disclosed information provided by the borrower.

This initial step is crucial for borrowers as it gives them an idea of how much they might be able to borrow and what terms could be available, helping them to understand their buying power when searching for a property. It's an important first step in the lending process, but it is distinct from more formal stages where comprehensive financial evaluations and detailed assessments of properties occur.