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Mortgage preapproval vs. prequalification
Which one is right for you depends on where you're at in the homebuying process.
Prequalification tells you what you can afford
A mortgage prequalification is an estimate of how much you may qualify to borrow. To get one, you disclose your income amount, how much you have in savings and your approximate credit score to a lender. In return, the lender may give you documentation showing your preliminary qualification amount.
A prequalification allows you to get a feel for your mortgage options without dinging your credit. But because there’s no verification involved, the amount on the letter isn’t set in stone and can’t be used to secure a loan — it’s simply a frame of reference for your eyes only.
Prequalify before your house hunt
If you’re just beginning to search for a house, a prequalification is a good place to start. Getting one can give you a ballpark feel for how much home you can afford and whether now is the right time to buy a house.
Preapproval tells you how much you may qualify to borrow
Mortgage preapproval is when a lender takes a look at your income, assets and three-bureau credit report. They use this information to determine the loan amount and mortgage programs for which you might qualify.
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.
Get preapproved when you’re ready to buy
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, 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 the loan you want.
A written loan commitment without conditions can give your offer even more weight than a preapproval that’s missing documentation.
Compare preapproval and prequalification
Only a preapproval gives you a true edge in the homebuying process, though a prequalification can still be useful in showing you where you stand financially. Other factors to consider:
|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||Often 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 your credit report||No|
Preapprovals and prequalifications have some similarities
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.
Pick the one that makes sense for you
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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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.
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