Prequalified Vs. Preapproved: What’s The Difference?

As you prepare to apply for a mortgage, you’ll likely come across some terminology that’s specific to the home buying process. Among the terms you might hear are “prequalification” and “preapproval,” which are different types of early approval that can set you up for finding and ultimately buying the house that’s right for you and your situation.

But what purpose exactly do preapproval and prequalification serve, and how do they differ? It’s important to know the answer to these questions before you go house hunting and pursue a source of financing for a home purchase.

How Do Lenders Handle Mortgage Approvals?

At the most basic level, prequalification and preapproval are types of mortgage approvals, and they refer to steps that lenders commonly take to verify or at least get some sense that a client can afford a mortgage. Here are a couple of points to remember:

• Every lender handles mortgage approvals differently. The steps and terminology used vary from lender to lender. Many lenders use “prequalification” and “preapproval” interchangeably, although they’ve traditionally carried different meanings.
• Neither is a guarantee that you’ll close the loan. Prequalification and preapproval are both a way for a lender to help you and a seller estimate what you can afford. After you find a house and make an offer, the home will still need to be appraised by a third party before you can receive final loan approval and buy the home. Although not typically required, having a house inspected for potential issues that warrant repairs is also wise before completing a purchase.

At Rocket Mortgage^®, we make the approval process as seamless as possible. You’ll quickly get feedback on your options and eligibility when you apply, and you can complete the entire process online.

What’s A Mortgage Prequalification?

Prequalification is when a lender collects basic financial information from you to estimate how much house you can afford. Getting confirmation from a lender that you prequalify for a home loan provides a general idea of how much you’ll be approved for when it comes time to close. Prequalification makes it easier to set a home buying budget and helps you narrow down your options when looking at homes.

For prequalification, lenders commonly rely on self-reported information and what’s known as a “soft” credit pull of your credit instead of verifying your finances by reviewing your financial documents and performing a “hard” credit pull – which temporarily lowers your credit score and is a more detailed review of your credit history.

Prequalification for a mortgage typically provides a less reliable estimate than a preapproval. This makes prequalification less reliable than preapproval, where your lender checks your credit score and reviews bank statements and other documents related to your personal finances.

Prequalification Letters Help You Start House Hunting

When you’re searching for a home, and especially when you make an offer, real estate agents and sellers want to know you have the financial backing to make good on a purchase. After prequalification, you’ll usually receive a “prequalification letter” that you can show to an agent or seller as proof of what you may be able to afford and that you’re working with a lender.

While prequalification is a good first step, it doesn’t carry as much weight as a mortgage preapproval because a lender hasn’t verified your financial information. Going beyond prequalification and getting preapproved by a lender is a critical step that shows you’re serious about buying a home.

Do You Have To Get Prequalified To Start Looking At Homes?

Prequalification is a great way to get a general idea of your home buying budget, but it’s not a requirement. You can look at homes without being prequalified.

Do You Need To Be Prequalified Before You Can Be Preapproved For A Loan?

You can skip prequalification and start with a preapproval, which is ideal if you know you’re ready to buy a home and want to make a qualified offer immediately.

Mortgage Prequalification Vs. Preapproval: What To Expect When Applying For A Home Loan

Both prequalification and preapproval provide borrowers with an estimate of how much home they can afford. However, a mortgage preapproval is a more official step that requires the lender to verify your financial information and credit history. Documents required for preapproval may include pay stubs, tax returns and your Social Security card.

You’ll receive a preapproval letter to supply to sellers, and this letter will indicate that a lender has verified your financial information and that you can afford a mortgage. Oftentimes, the letter will give an exact amount you can spend on a home purchase, pending final approval later on.

Lenders typically offer a few levels of approval designed to give you a clearer picture of what you can afford. Since we’ve already taken a look at prequalification, we’ll dive into preapprovals.

Preapproval And Verified Approval

After you’ve been prequalified for a mortgage, you can pursue mortgage preapproval. You’ll need to speak to a home loan expert and provide documentation to verify your income and assets.

With Rocket Mortgage, you can get what’s known as a Verified Approval¹ – which is an initial loan approval that an underwriter manually completes. This extra diligence reduces the risk of a deal on a home falling through due to lack of financing.

Verified Approval can offer buyers peace of mind and an edge over other buyers in a competitive market. Once you get approved, your lender will issue an approval letter. You can show this to your real estate agent and sellers as proof that you have enough financing to purchase a home.

Should You Get Prequalified Or Preapproved?

Getting preapproved for a mortgage will be the best option for most serious home buyers. But the best option for you will depend on the stage of the home buying process you’re in.

The Bottom Line

A mortgage prequalification is a good first step if you want a loose estimate on how much you might be able to spend on a home purchase. A preapproval takes it one step further and verifies the financial information you submit to calculate a more accurate amount you can spend. Getting approved early in your home search will help you not waste time looking at houses outside of your budget, and it’ll also help you stand out to sellers when the time comes to make an offer.

Ready to start your home buying journey with confidence? Take the next step and start the process for initial mortgage approval online with Rocket Mortgage.

¹ Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance and appraisal as well as a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid on jumbo loans or for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.