Prequalified Vs. Preapproved: What’s The Difference?

When seeking a mortgage, knowing whether you’re prequalified or preapproved can make a huge difference. While it’s possible to confuse the two terms, prequalification and preapproval differ in their processes, whether the information being required of the borrower is verified, and how much weight one carries versus the other.

Let’s take a close-up look at the differences between being prequalified and being preapproved for a mortgage.

Preapproved Vs. Prequalified

Prequalification refers to an estimated loan amount that you receive from a mortgage lender after they receive verbal or written financial information from you. With a preapproval, on the other hand, your mortgage lender decides how much you’ve been approved for and what your interest rate might be after you’ve completed the necessary steps and handed in the right documentation.

Prequalification and preapproval are both types of mortgage approvals, but a preapproval tends to be more accurate. Prequalification is a ballpark estimate based on information the buyer submits, whereas the information is verified by a lender for a preapproval, making it a more rigorous process.

The chart below provides an at-a-glance overview of the differences between being prequalified and preapproved for a mortgage.

Even if you’ve already been prequalified to take out a mortgage, you’ll want to take the extra step of getting preapproved before you make an offer on a home.

Differences Between Prequalified And Preapproved

A prequalification involves verbal or written estimates of your income and assets used to qualify for a mortgage. The lender will sometimes do a credit check, but it’s almost always a soft inquiry that won’t affect your credit score. Meanwhile, the lender will typically rely on you to provide the necessary estimates. Based on that information, the lender will give you their best guess as to how much home you can afford, and they may provide an estimated interest rate as well.

While it happens quickly and is a fairly easy process, the weakness of prequalification is that nothing is verified. With a preapproval, a lender will run a full credit check and have you share official documentation. This gives a much more exact interest rate and amount you can afford.

Even so, a preapproval doesn’t 100% guarantee mortgage financing. If, for example, you decided to take out new loans or credit and significantly change your financial profile before closing on your home, it could change the amount you qualify for. However, while a preapproval isn’t final, it shows sellers you are serious and should have the financial backing to make your offer.

Similarities Between Prequalified And Preapproved

Although they arrive at the answer differently, both a prequalification and preapproval are estimates of how much you can afford to pay for a home. A preapproval is just stronger because it’s always backed by documentation and takes a deeper dive into your finances.

As mentioned before, neither prequalification nor preapproval will absolutely guarantee home loan financing.

What Does Prequalified Mean?

Prequalification is often the first step you’ll take in the home buying process. This can usually be completed online or over the phone, and you can receive prequalification within 24 hours in the form of a prequalification letter once the process is complete.

During the prequalification process, you’ll submit information to your lender about your current financial situation. You’ll let your lender know your income and how much outstanding debt you have.

However, your lender won’t typically verify this information, and there’s usually no credit check required. You’ll receive an estimate of how much you can borrow along with potential interest rate info, but this is far from set in stone.

Getting prequalified can help you get a sense of how much you may be able to borrow for a mortgage, but this number isn’t definite – it could change once your lender verifies your financial information during the preapproval process.

How To Get A Mortgage Prequalification

You’ll need to take several steps to get prequalified for a mortgage. Fortunately, this process is relatively easy to complete.

Here are the typical steps, in order:

1. Find a mortgage lender. First, you’ll need to pick a lender or several lenders to apply for prequalification with. If you get prequalified with multiple mortgage lenders, you can compare your offers and see who provides you the best terms.
2. Discuss your financial situation. Your lender will need information about your debt, income and assets to provide you with a mortgage estimate. To make this process easier, it helps to have any necessary documentation on hand when you apply – the more accurate the information you provide, the more accurate your mortgage estimate.
3. Get an estimate. Next, your lender will provide a ballpark estimate of the loan amount you may qualify for. However, this isn’t a guarantee that you’ll be approved for a loan, but it’s a loose guideline for what you can afford.
4. Request your prequalification letter. Finally, request a prequalification letter that you can show your real estate agent. This letter will summarize everything you and your lender have discussed up until this point. Although there’s nothing official about your prequalification letter, it allows your agent to help you determine the starting point for finding homes in your price range.

What Does Preapproved Mean?

Once you’re prequalified for a mortgage, preapproval is the next step you’ll take. As already mentioned, this process is more rigorous because the lender will verify the information you provided for your prequalification and probe even deeper into your finances.

During this stage, you’ll fill out an official mortgage application and provide your lender with any necessary financial documents, including bank statements, W-2s, pay stubs and tax returns.

Your lender will review this information, check your credit history and perhaps complete an upfront underwriting process before letting you know how much money you’re preapproved for. At this point, you may also be able to temporarily lock an interest rate.

How To Get A Mortgage Preapproval

Here are the steps you’ll take to get preapproved for a mortgage:

1. Complete a mortgage application. Unlike a prequalification, getting preapproval for a mortgage requires you to complete an application, which may include paying an application fee. You should also be prepared to let your lender know how much you’re willing to put toward a down payment. Also be aware that you’ll undergo a hard inquiry of your credit.
2. Provide necessary information. During the preapproval process, you must provide your lender with the documentation needed about your financial situation. This will allow the lender to determine how much you can borrow. Here’s some of the information you’ll probability need:

• Your credit score and credit report
• W-2s
• Pay stubs
• Bank statements
• Tax returns
• Your driver’s license
• Proof of employment
• Gift letters (if applicable)

3. Determine your estimate and rate. Once you’re preapproved for a mortgage, you’ll receive a more accurate approval amount and interest rate. Make sure you understand your estimated interest rate since this will affect how much you’ll end up paying over the life of the loan.
4. Get a preapproval letter. The final step in getting preapproved is receiving a preapproval letter from your lender. This letter will explain how much you’ve been preapproved to borrow based on your financial situation.

A preapproval letter carries more weight than just a prequalification letter. Having a preapproval letter for a seller or their listing agent to review will assure them that you’re a serious buyer, which is why it’s a good idea to have your preapproval before you start looking at homes. This makes preapproval one of the most important steps in the home buying process.

Why Is It Important To Get A Mortgage Prequalification Or Preapproval?

If you’re looking for a home, it’s often best to get both prequalified and preapproved for a mortgage. Getting preapproved, in particular, is essential in a seller’s market where you’ll find more competition for homes. In sum: A preapproval letter makes it more likely that a seller will accept your offer.

Many sellers and their real estate agents won’t consider an offer not backed by a verified preapproval. Rocket Mortgage^® can offer one even better with a Verified Approval Letter.

Prequalified Vs. Preapproved FAQs

With so much to understand about being preapproved versus prequalified, it’s natural to have a number of questions. Here are some frequently asked questions and answers pertaining to this subject.

Is it better to be prequalified or preapproved?

It’s better to be preapproved. A mortgage preapproval provides a more accurate estimation of the loan amount, interest rate and terms you qualify for. A preapproval letter will also show a seller how serious you are about buying their home.

Will I get approved if I prequalify?

Getting prequalified doesn’t guarantee final mortgage approval, but neither does preapproval, although it’s a better indicator. Prequalification is simply an estimate of the mortgage you could afford based on a limited review of your financial information.

How long does prequalification last?

A prequalification letter provides only an estimate of your loan eligibility, without verification, so it doesn’t have an expiration date, per se. A preapproval letter, however, is generally valid for 60 – 90 days once received.

The Bottom Line

While both prequalification and preapproval are estimates of how much home you can afford, a preapproval ultimately provides more accurate information because the lender has verified that information. A prequalification can be a good start if you’re just trying to get an idea of what you can afford, but many sellers and real estate agents only consider offers based on a preapproval with documentation.

If you feel like you’re ready to move forward, you can apply for a mortgage loan from our friends at Rocket Mortgage. You can also call them at (833) 326-6020.