What is the term for an informal process that a lender or agent can conduct?

The term for an informal process that a lender or agent can conduct is pre-qualification. This process typically involves a preliminary assessment of a borrower's financial situation based just on the information the borrower provides, without requiring formal documentation. During pre-qualification, the lender or agent might ask for details about the borrower's income, assets, and debts to estimate how much they might be able to borrow.

Unlike a pre-approval, which involves a more rigorous review of the borrower's financial situation and often requires documentation, pre-qualification is a more informal step and serves primarily to give prospective borrowers a basic idea of their potential buying power. It helps buyers understand their financial limits and can guide them in their property search.

This distinction is significant because many individuals mistakenly use these terms interchangeably, but understanding the difference helps clarify the various stages of securing financing for a home purchase.