Pre-Qualified vs. Pre-Approved: What’s the Difference?

Image to accompany article on the difference between mortgage pre-approval and mortgage prequalification Getty Images

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Low interest rates have kept the housing market hot despite the pandemic and recession. 

If you’re looking to get into a house, you need to be prepared to act fast, as inventory is moving quickly. Houses in the U.S. are only on the market for an average of 12 days, according to Zillow

One way you can get a leg-up on the competition is to be preapproved for a mortgage before you put an offer down. While preapproval is often confused with prequalification, preapproval will give you more advantage — and the information you need to confidently start your homebuying process.

What Is Mortgage Preapproval? 

Mortgage preapproval tells you how much you can borrow for a home. A preapproval involves going through an underwriting process, where an underwriter at a bank or loan office of your choice will determine what you qualify for based on information you submit, including the following:

  • Proof of income 
  • Employment verification
  • Credit score
  • Personal information (like your Social Security number) 

“What that really allows the consumer to do is go and find the property without any hesitation, so they know for a fact that they’ve been underwritten, that they’ve been screened by the underwriter to say, ‘OK, I qualify for a $200,000 mortgage or a $300,000 mortgage or $370,000 mortgage’,” says Thomas Brown, president and CEO of The Agency Texas and a Zillow premier agent.

How to Get Preapproved

  1. Choose a lender: The first step to getting preapproved is to choose a lender. Banks, credit unions, and loan offices can all preapprove mortgage applications. An independent mortgage broker can compare and use multiple banks to shop for the best rate and product. 
  2. Submit your information: Lenders will need evidence that you can repay a mortgage. They’ll look at your assets, debts, employment history, bank accounts, and other information, though exact requirements vary by lender. 
  3. Wait: Preapprovals do not happen immediately. It could take several weeks for a bank or lending institution to give you a preapproval or not, especially when rates are low and the real estate market is very active as it has been throughout 2020 and heading into 2021. Preapprovals are valid for 60 to 90 days, so after you’ve been approved it’s time to go shopping. 

“I would suggest that any consumer that is shopping for a home to go through the process as soon as they know they’re ready to buy a home,” says Brown.

While rates are very low, borrowing standards have increased during the pandemic, and the main change for the preapproval process involves multiple employment checks right up until closing.  

Pro Tip

Mortgage preapprovals are valid for 60 to 90 days, so make sure that timing lines up with when you plan to make an offer on a house to avoid having to redo the process later.

What Is Prequalification

A prequalification isn’t anything official, but rather an initial conversation with your lender that involves giving them basic information about your employment situation, your income, and your credit history. Unlike a true preapproval that involves the lender evaluating your documents and information directly, the lender just uses the information you provide to give you an idea of what kind of loan you might be prequalified for.

“It’s vastly different than a true preapproval because you’re not going through the underwriting process,” says Brown. “You’re just having a discussion with your lending institution and explaining to them what all of your information is. However it’s not verified.”

Prequalification is much quicker than the preapproval process and allows the consumer to get a general idea of what they’ll qualify for. But it’s not verified by true underwriting guidelines, says Brown.

A prequalification can be a first step to a preapproval— just make sure the unofficial information you’re sharing is as accurate as possible for the best idea of what you can afford. It will be verified by the lender during the preapproval process, so if it’s different than what you told them during prequalification you could find out you qualify for a different amount or rate than you expected.

“I would always suggest having that initial conversation with your lending partner because it will allow you to get a good sense of where you are financially and what you can afford,” says Brown.

Bottom Line

Preapproval puts all of the information in the hands of the homebuyer. And especially for first-timers who might not know their options, it can make the process smoother. 

“If you’re a first-time homebuyer today, I would strongly urge you to be preapproved for a mortgage. This way you’re armed with all of the facts. There are no surprises. And you can go ahead and confidently put in offers on properties because in most cases, depending upon where you are in the country markets are very, very competitive,” says Brown.