Mortgage preapproval vs. prequalification

Prequalification involves an unverified account of your personal finances, as reported by you. Only after your lender or broker verifies those numbers can your prequalification become a preapproval. When shopping for a new home, you’re going to want to know the nuances between the two.

What is mortgage preapproval?

Mortgage preapproval is when a lender takes a look at your income, assets and three-bureau credit report. They use this information to determine how much you can afford in a home and the mortgage programs you qualify for.

Obtaining a preapproval is among the first steps you’ll take when shopping for a home. Home sellers want to feel confident that you can secure financing and buy their home. Accompanying your offers with a fully validated preapproval letter can help build that confidence and give you an edge over other applicants in a competitive market.

When should I get a mortgage preapproval?

Though it’s one of the first steps in the homebuying process, you likely won’t want to get a preapproval letter until you’re actually ready to buy. Since getting a letter often involves having some skin in the game — like paying an application fee, it signals a buyer’s readiness to move forward.

Not all preapprovals are created equal

Your lender may send a preapproval letter before it’s fully vetted your qualifications. It may have pulled your credit report, but unless you provide your W-2s, bank statements, pay stubs and related financial documentation, there’s a chance you still might not qualify for a loan.

A written loan commitment without conditions can give your offer even more weight than a preapproval that’s missing documentation.

What is mortgage prequalification?

A mortgage prequalification is an estimate of how much you may qualify to borrow. To get one, you tell a lender how much you make, how much you have in savings and approximately what your credit score is. In return, the lender may give you documentation showing what you might qualify for.

A prequalification allows you to get a feel for your mortgage options without dinging your credit. But because there’s no verification involved in a prequalification, the amount on the letter is not set in stone and can’t be used to secure a loan — it’s simply a frame of reference for your eyes only.

When should I get a mortgage prequalification?

If you’re just beginning your house hunt, a prequalification is a good place to start. Getting one is typically the first step to securing a mortgage and can give you a ballpark feel for how much home you might be able to afford.

What’s the difference between preapproval and prequalification?

Only a preapproval gives you a true edge in the homebuying process, though a prequalification can still be useful showing you where you stand financially. Other factors to consider:

	Preapproval	Prequalification
When should I choose this option?	When you’re ready to shop for a new home	When you’re thinking about buying a new home
Will I have to fill out an application?	Yes	No
How long does it take?	30–60 minutes	5–10 minutes
Cost	Typically free	Typically free
What information do I need?	Credit report, income documentation and asset statements	A general idea of your credit score, income and savings
How long does it last?	60–90 days	Because it’s only a frame of reference, there’s no expiration
Will I know my interest rate?	Not until you lock in a rate, but your lender may provide you with a range based off of your credit report	No

How are preapprovals and prequalifications similar?

Though a lender doesn’t look upon them in the exact same way, there are some common threads between preapprovals and prequalifications. Both documents:

• Can provide you with an idea of your borrowing power
• Show a certain level of commitment to a seller
• Could help your offer stand out in a crowded market

Even though they’re often strong indicators of creditworthiness, neither option guarantees a mortgage.

Which one makes more sense?

If you’re entertaining the idea of buying a home and need only a general idea of your qualifications, you may not need preapproval. Preapproval takes more time than prequalifying, and it temporarily drops your credit score due to a check on your credit.

When you’re ready to shop for a home, preapproval provides the details your lender and seller need to determine your ability to close on a loan. And you may need it even to put in an offer.

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Bottom line

A prequalification can help give you a general feel for where you stand financially — but it’s an unverified document and is only intended for you. If you’re actually in the market to buy a home, a fully validated preapproval can give you an edge over other borrowers without one. To get started, compare your mortgage options to find the right fit for you.

Frequently asked questions

• What effect does a credit check have on my credit score?

  Every time you apply for credit, a lender conducts a hard pull of your credit report. This type of inquiry temporarily lowers your credit score, typically by a few points.

• What should I do if I don't get approved?

  Talk with the lender and try to understand why. They can often give you actionable steps to get you moving in the right direction. Different lenders also have different requirements, so you can always seek a second opinion.