Mortgage Preapproved vs. Prequalified: What Is the Difference?

Written by Kim PinnelliUpdated: 2nd Jan 2022
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Many people use the terms preapproved and prequalification interchangeably, but they shouldn’t. While they are both approvals before the final approval, they have different outcomes and provide different opportunities.

Understanding the difference between pre-qualification and preapproval is important before you try to get mortgage financing.

Preapproved vs. Prequalified Overview

A mortgage preapproval and pre-qualification are both an evaluation of your personal qualifying factors, but the similarities end there.

Understanding Mortgage Preapproval

Think of a mortgage preapproval as the first step in getting a mortgage. During the preapproval, an underwriter evaluates your qualifying factors based on the proof you provide, including:

  • Paystubs for the last 30 days
  • W-2s for the last 2 years
  • Tax returns for the last 2 years (if you’re self-employed)
  • Asset statements for the last 2 months
  • Contact information for your employer

You can use this letter to show sellers you can afford the home you want to buy. The lender will also pull your credit report. If your credit score and qualifying factors meet the loan requirements, you’ll get a preapproval for the sales price and the loan amount you qualify for.

>> More: How to Get a Mortgage Preapproval

Understanding Mortgage Prequalified

A pre-qualification sounds similar, but it’s really just an estimate of what you can afford. During the pre-qualification, mortgage lenders ask you about your credit score, income, assets, and liabilities, but they don’t ask for any proof of it.

They’ll use the information you provide to come up with an estimate of what you can afford. Nothing is binding until you provide the actual proof of your qualifying factors and the underwriter reviews them.

>> More: How to Apply for a Mortgage

Prequalified Vs. Preapproved for Your Mortgage: What’s The Difference?

There are two major differences between being prequalified and preapproved for a mortgage.

When you’re prequalified for a mortgage, everything is verbal. You talk on the phone or even chat online.

You don’t provide any proof of your qualifying factors. The lender goes off of the information you provide verbally.

When the lender decides if you prequalify for a loan or not, they’ll tell you verbally. In some cases, they may write a letter, but it’s informal and doesn’t help you with the buying process.

When you’re preapproved, everything is in writing. An online mortgage lender won’t preapprove you for a loan without actual proof of your income, assets, credit, and liabilities. You’ll complete a loan application and provide official proof of your qualifying factors.

If the lender decides you’re a good candidate for the loan, they’ll write a preapproval letter.

Preapproval and Prequalification Letters

If a lender writes a pre-qualification letter, it is very informal and states that you might qualify for the loan program stated in the letter.

The letter will likely include the conditions you must satisfy to get a preapproval which includes proof of income, assets, and employment, along with any conditions the home you choose must meet.

A preapproval letter contains the loan amount you qualify for, the lender’s rate, the loan program you can use, and any conditions you must satisfy to close on the loan.

The preapproval letter holds much more weight with sellers because it’s proof that an underwriter looked at your situation and decided you’re eligible for a loan if you can satisfy the conditions stated in the letter.

Is it Better to be Preapproved or Prequalified?

If you’re ready to buy a house, there’s no question a preapproval is the only option. Sellers don’t accept pre-qualifications since those are just estimates of what you can afford.

A pre-qual isn’t official, and it may not even include a letter. But, if you are just starting the process and wondering how much you can afford or what program you’d be eligible for, a pre-qualification can be fine. It depends on the lender.

When you’re ready to look at homes, it’s best to take that next step and get preapproved. If you’ve already been prequalified, you know what program you fit into.

All you need to do is provide your qualifying documents for the underwriter to review to turn the pre-qualification into a preapproval.

>> More: How to Choose the Best Mortgage Loan

Does it Cost Money to Get Preapproved or Prequalified for a Mortgage?

It costs nothing to get preapproved or prequalified for a mortgage. You don’t owe closing costs unless you close on the loan.

Because it costs nothing, consider getting preapproved from several lenders. This will give you options.

You can compare the Loan Estimate from each lender and see which option suits you the best. You may find some lenders charge lower rates or higher fees.

Look at the big picture when comparing loans. How much does the loan cost over its lifetime? You may be surprised that sometimes the loans with the higher rates cost less in the end because they have fewer closing costs.

What Comes First Preapproval or Prequalification?

There isn’t a specific order you must go in to get preapproved for a mortgage. You can skip the pre-qualification step altogether if you are ready to look at homes and have money saved for the down payment.

If you aren’t quite ready and just want to gauge where you’re at, a pre-qualification would come first, but make sure you always end up with a preapproval. It’s the only way to show sellers you are a serious and capable buyer.

Bottom Line: Preapproval vs. Prequalification

While you can skip the pre-qualification if you already have money for a down payment and are sure you’ll meet the loan requirements, never skip the preapproval.

The preapproval letter is what sellers want before they’ll let you see their home or make an offer. You want to show sellers you are a capable buyer with the financing ready to buy their home.

A preapproval letter is good for up to 90 days in most cases, so that gives you time to find your dream home and secure the financing you need to buy it.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.