If you are thinking of buying a home chances are you’ve heard the terms preapproved and prequalified thrown around. While they may seem similar, the differences in these two words are very important.

Being pre-qualified for a loan is a good first step, but it is the least guaranteed step along the way to home ownership. This term simply means that you tell a lender or real estate agent information about your credit, income, assets and debt and that person gives you a quote based on a debt-to-income ratio formula. You can actually do this for yourself, too. However, this is a no-obligation quote as your credit report is not run and the person providing the quote is doing it on good faith. It is a good idea to start shopping for a home this way to give you an idea of what you can afford.

Pre-approved is a step up from pre-qualified. For this you have to actually submit a mortgage application and the lender will run your credit. Generally you’ll have to pay a fee to the lender and he or she will give you a good faith estimate for all the necessary loan expense. With a pre-approval you can start looking for a home in a known price range and sellers will be more confident in your seriousness to buy. However, pre-approval is still not a guarantee that you’ll get the loan.

Loan commitment is the final step. A lender has to approve the house as well as your credit to issue a loan commitment. Once a loan commitment is offered though, you are on your way to buying your home.