The Difference Between Preapproval and Prequalification

When embarking on a new home search – or even just thinking about looking at new homes online – the best place to start is with home financing and, specifically, with narrowing down a price range. Whether you’re just perusing online financing tips and homebuying tips or visiting communities in person, knowing what you can afford to buy can potentially save you time and heartache. After all, who wants to fall in love with a new home only to learn they couldn’t afford to buy it?

True Homes buyers typically start their home searches with either a pre-qualification or a pre-approval from a lender. Both of these options helps buyers to consider their income, debts and assets so they can determine how much home they can afford to buy. While prequalification and preapproval are similar, the two processes are very different in their implementation and their purpose.

What is a prequalification?

Though definitions may vary with some lenders, a pre-qualification is typically considered an informal review of the potential borrower’s income and recurring debts to determine how much room they have in their budget for a mortgage loan payment.

Lenders might also ask the borrowers general questions about their credit scores – do they rate their score as excellent, good, or poor, for example. And they may also want to know more about borrowers’ assets and plans for making a down payment.

With all of this information, the lender determines how much the borrower may be able to access for a mortgage loan and, adding on the down payment amount, the level of home price they may be able to afford.

Pre-qualifications are typically based on the borrower’s own reporting rather than on a formal review by the lender. Though some lenders may issue a pre-qualification letter, these do not influence sellers as much as a pre-approval letter. In most cases, the pre-qualification letter just says to the seller, “I’ve talked with a lender, and based on information I provided, we think I may be able access home financing for this price range.”

For this reason, financing tips typically suggest a pre-qualification as a great first step for home buyers, particularly first-time homebuyers, who are just getting ready to start their home search but aren’t ready to make an offer yet.

What is a pre-approval?

A mortgage pre-approval is a lender’s conditional offer to make a mortgage loan for a specified amount. In order to issue the offer, the lender has done a thorough review of the buyer’s income, debts, assets and credit score. Sometimes, they will have taken formal mortgage application and taken the application through the full underwriting process.

Because it’s backed by a thorough review, a pre-approval letter holds much more influence with sellers, and it’s the step to take before making an offer on new home. It says to sellers that this potential buyer has the home financing to take this offer to the closing table and can probably do so faster than someone who is not yet talking with a lender.

A pre-approval takes more time and effort than getting a pre-qualification. However, the extra steps are actually just shifted. Everyone who borrows money to purchase a home goes through them eventually. Going to the extra trouble at the front-end of the buying process simply means that less work is required after an offer is made and accepted.

What is required to get a pre-approval?

Some lenders charge a fee to process a pre-approval. All will require documentation. Just as for a full mortgage application, prospective borrowers will need to provide:

W-2s for at least two years


Bank statements

Federal income tax returns (including all worksheets and schedules)

Driver’s license

Proof of employment

The lender will also pull a credit score. When a credit score is accessed for home financing, the action usually triggers notifications for various lenders who have paid to be alerted when consumers appear to be house hunting. Suddenly, potential home buyers may find themselves receiving a variety of lending offers.

It can save time and frustration to opt-out of the craziness. Just call 888-567-8688 or visit It will take some time for the companies to process the preference, so it helps to take this step long before starting the pre-approval process.

True Homes is pleased to offer financing tips and homebuying tips to buyers looking for new homes. Look for more coming to the True Homes blog soon!

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