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- Prequalification is a simple, quick process that provides a general indication whether you would qualify for a mortgage.
- Preapproval requires providing extensive documentation regarding your income, employment, savings and debt.
- You can’t use a prequalification as evidence of financing when making an offer on a home.
Mortgage borrowers (and some lenders) often use the terms “prequalified” and “preapproved” interchangeably, but they aren’t quite the same. So, what is the difference between being preapproved and prequalified for a mortgage?
Both relate to your status before you actually have the home loan in hand. Prequalifying for a mortgage isn’t as involved — and it simply gives you an idea of whether you’ll qualify for a mortgage, and if so, approximately for how much and at what interest rate. On the other hand, getting preapproved requires more legwork and indicates that the lender is committed to moving forward with your financing.
What is the difference between preapproved and prequalified?
The main difference between prequalified and preapproved: Preapprovals hold more weight when trying to buy a home.
Prequalifying involves providing some basic financial info to get a general idea of whether you can get a mortgage, how much you could borrow and the interest rate. For a preapproval, lenders do a deeper dive into your financial situation and need more documentation.
There’s a bit more to it than that, though. Here’s a side-by-side comparison of mortgage prequalification vs. preapproval.
- No formal application required, but might require soft credit check
- Provides estimate of how much you might be eligible to borrow
- Relatively quick process and rapid response from lender
- Not a commitment, and not used when making an offer on a home
- Requires documentation and hard credit check
- Provides conditional loan approval
- Could take time to gather documentation and complete application, then take anywhere from a few minutes to a few business days for response
- Demonstrates to home sellers you’re a serious buyer and on track to full approval
What is a mortgage prequalification?
Some mortgage lenders give borrowers the option to see if they prequalify for a loan.
To get a prequalification, you’ll need to undergo a soft credit check — which won’t affect your credit score — and submit basic information about your financial situation.
A mortgage prequalification is only a general indication that a lender could approve you for a mortgage if you formally applied. It might be your first step in the homebuying process, and you can usually get a prequalification through a phone call or brief online application.
What is a mortgage preapproval?
A mortgage preapproval is a letter or written statement that specifies your maximum loan amount and the lender’s commitment to fund the loan if your financial situation remains the same.
To get a mortgage preapproval, you’ll need to provide extensive documentation regarding your income, savings and debt, such as credit cards and student loans. You’ll also undergo a hard credit check. Your mortgage lender uses this information to determine whether to offer you a loan, and at what maximum amount and interest rate.
The mortgage isn’t a done deal until the loan goes through underwriting and the lender confirms the information in your application. If there are discrepancies, your loan terms could be modified, or the lender might deny your application.
While it’s more complex than prequalification, you can still get a preapproval fast. Some online lenders issue preapproval letters in minutes. Others might require a full day or even a week to review the information you submit.
Regardless of how long it takes, the wait is worth it since you’ll need a preapproval in hand before making an offer on a home.
“Preapproval carries more weight because it means lenders have actually done more than a cursory review of your credit and your finances, but have instead reviewed your pay stubs, tax returns and bank statements,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “A preapproval means you’ve cleared the hurdles necessary to be approved for a mortgage up to a certain dollar amount.”
Which should I choose: preapproval or prequalification?
When it comes to preapproval vs. prequalification, they have one major thing in common: They’re both indications from a mortgage lender that you are eligible for a mortgage. However, a preapproval is much more detailed — and more of a guarantee.
“Because prequalification may not always lead to loan approval, it is important for homebuyers to avoid making any firm plans based on their qualification status,” McBride says. “If the mortgage lending process were a highway intersection, prequalification would be the yellow traffic light and preapproval would be the green light.”
That green light is important in today’s housing market. Since some markets are especially hot, sellers might be getting competing offers. If they’re comparing one offer without a preapproval letter to an offer that does have one, they’re likely to go with the preapproved buyer — it’s a safer bet.
While there are differences between getting preapproved vs. prequalified, both processes usually involve credit checks: a soft check for prequalification and a hard check for preapproval. Only hard checks will impact your credit score, and typically, these are recorded as one inquiry on your credit report if they’re done within 45 days.
How to get started with the preapproval process
Before you ask a mortgage lender to preapprove you for a certain amount of money, look at your budget to determine how much you can contribute to a down payment. Most lenders will want an idea of what you plan to cover to have an estimate of your loan-to-value (LTV) ratio. Gather all the documentation a lender will request so you’re ready to hand it over.
Remember, just because you get preapproved or prequalified from one lender, it doesn’t mean you have to actually get your mortgage through that specific lender. Always shop around before you make the final call on a lender, because rates and terms vary. By shopping with multiple lenders, you can determine if you’re getting the best deal.
No, they aren’t quite the same thing. Prequalification is not as involved as preapproval. It does not require providing more extensive financial documentation and typically does not require undergoing a hard credit check. Prequalification is simply designed to allow applicants to determine whether they would qualify for a mortgage and for how much.
No, you don’t need to get prequalified before shopping for a home. But doing so is very useful. Prequalification will let you know whether you’d qualify for a mortgage and for how much. Taking this step can give you a better idea of your home shopping budget.
No, you don’t need a prequalification to get preapproved. If you’re ready to buy a home and have all of your documents in order, you can simply proceed with applying for full preapproval rather than prequalification.
You should get preapproved or prequalified before you begin looking at homes. A seller will want the assurance that you’ve done the prep work — and that a bank or credit union has done enough research to feel confident about loaning you the money. Some real estate agents prefer you be preapproved or at least prequalified before they start working with you, too.
Additional reporting by Taylor Freitas