Pre-Approval vs. Prequalification
As you’re starting in the mortgage application process, you’ll hear references to pre-approved and prequalified mortgages. While they sound similar, they are not the same thing, and it’s important to understand the difference and how they may affect your ability to buy a home.
So what do they have in common? Both start with giving your lender or Mortgage Specialist information about your current finances to help them determine what kind of mortgage you could be eligible for. What kind of information you provide, and the level of commitment from your lender, are where the real differences come in.
What Does Prequalified Mean?
Being prequalified means that a lender has taken a look at your current financial state and made an approximation of how much you will able to borrow. Because you are only looking at the basics of your current income, debt, and assets, prequalification is not a commitment to a certain amount.
Advantages of Prequalification
- Relatively quick, can be done online, over the phone, or in-person
- Does not require a credit check
- Helps guide you as you look for a home within your price range
What Does Pre-Approved Mean?
Pre-approval means a lender has assessed a more complete financial history, and will issue you a letter committing to an exact loan amount. The letter will be conditional, meaning it could change if your financial situation changes as you look for a home, but it can be provided to a seller as proof of your ability to secure funding. To get pre-approved for a mortgage, you will need to fill out a full application, minus the property information, as well as pay the application fee.
Advantages of Pre-Approval
- Provides leverage with sellers that you will be able to secure funding, which could give you an advantage in having your offer accepted
- Could speed up closing, as some financial history has already been confirmed by an underwriter
- Helps you plan for the future with a better idea of your potential loan amount and interest rate
Prequalification and pre-approval are not mutually exclusive. If you’ve already prequalified, talk to your Mortgage Specialist to determine if getting preapproved is the right next step for you in the home buying process.