Prequalified vs. Preapproved: What's the Difference?

Learn more about how they compare.

As you start the homebuying journey, you're probably wondering how to figure out how much home you can afford. Two ways you can do this is to get preapproved or prequalified. These can show you what to expect when borrowing for your home. However, there are big differences between prequalification and preapproval.

Both guide you in choosing which houses to look at by offering insight into your budget and future housing costs. Both can also improve your chances of getting an offer accepted by a seller, as sellers prefer you include proof of preapproval or prequalification. That way, they make sure there's a good chance you'll get financing before taking the home off the market.

Prequalification is faster and easier, but less precise. It also leaves more steps to do later in the homebuying process. Preapproval, on the other hand, helps you get closer to actual loan approval, but is more time-consuming.

This guide will explain the key differences between home loan prequalification and preapproval so you can learn which is right for you.

Key Differences Between Prequalification and Preapproval

Prequalification and preapproval both help you understand how much home you can afford to buy. The main differences lie in terms of the amount of information you must give your lender up front and how close the process gets you to final approval.

Prequalification is a quick process to give you a more general idea of how much you can borrow. You provide basic details about yourself and any co-buyer and answer some questions about your income, down payment, and other properties you own. Based on this information and a credit check, your lender will provide a preliminary estimate of what size mortgage you're eligible for.

Preapproval is more in-depth and does not just rely on your word. You'll have your credit checked just like with prequalification, but you won't just be asked questions about your finances. You must provide financial documentation and paperwork, such as tax returns, pay stubs, and more.

Preapproval takes more time but provides a more accurate estimate of your rate and total borrowing costs. When you get preapproved, you'll already have started the process of submitting the paperwork your lender will need to finalize your loan. As a result, things may move more quickly towards closing when you find a home to buy.

Regardless, neither preapproval nor prequalification come with a guarantee you'll secure a loan. You will still have to go through the formal loan approval process to get your mortgage.

Check out the table below to better understand the difference between prequalification and preapproval and decide which is right for you.

While both prequalification and preapproval are helpful at the start of your homebuying journey, often one process makes more sense for you than the other. This depends on the specifics of your situation.

For example, prequalification might be the best option if:

• You want help determining your home budget.
• You don't have all of your financial documents together or don’t have the time to gather them yet.
• You want to get an idea of what your loan options look like.
• You want to see if you're in a financial position to buy a home.

On the other hand, preapproval may be the best choice if:

• You want more detailed insight into your loan amount and future interest rate.
• You're ready to provide financial documentation, including bank statements, tax returns, and more.
• You want to get as close as you can to loan approval so you can close quickly when you find a home.
• You are making an offer from a seller that requires preapproval instead of prequalification.

If you want a quick answer about your mortgage loan eligibility, Freedom Mortgage® can see if you are prequalified over the phone in minutes. Just give us a call today, so you'll be ready to start looking for a home tomorrow

How to Get Prequalified or Preapproved for a Mortgage

Learning how to get prequalified for a mortgage is easy because the process is so simple. To get prequalified:

• Contact Freedom Mortgage at 888-369-3719.
• Give them permission to check your credit.
• Answer some basic questions about your income.
• Provide the estimated amount of your home down payment.
• Describe other debts you have, including the costs of other properties you owe.

That's all you need to get prequalified. In order to get preapproved, you'll need to:

• Submit a preapproval application to a mortgage lender that offers this option.
• Gather financial documents, such as bank statements, tax returns, and W-2s or 1099s, to prove your income and the amount of assets you have.
• Wait, as the process can take anywhere from a few days to a few weeks, depending on how complicated your finances are.

Do Prequalification and Preapproval Affect Credit Scores?

Since mortgage lenders check your credit to either preapprove you or prequalify you for a mortgage, you might wonder if this process can impact your credit score.

Prequalifications usually just require a soft credit pull, which is not the same as an inquiry. With a soft credit pull, your credit score will not change.

Preapprovals require a hard credit pull. These inquiries stay on your report for up to two years. Most people only saw a very slight drop in score, such as five points or less, after getting a new inquiry, according to FICO®. You can learn more about these credit checks here.

While it's normal to be worried about your credit, shopping around for a loan is a part of the process of buying a home. Small drops in your score as you compare loan options shouldn't affect eventual loan approval.

Generally, multiple inquiries are often grouped together when you are shopping for a mortgage. This means if you get three inquiries from different mortgage lenders within a few weeks of each other, you only get one inquiry counted on your record.

Final Thoughts on Mortgage Prequalification vs. Preapproval

Mortgage prequalification is a fast and simple approach to getting the homebuying journey started. It’s worth getting prequalified so you can understand what your loan options will be and make smart choices about shopping for a home or improving your financial credentials. Meanwhile, mortgage preapproval is a good idea if you’re committed to buying a home in the near future. While it takes more time, it can give you a clearer picture of what you can afford.

Start the prequalification process today by reaching out to Freedom Mortgage to get prequalified for your home loan.