What Is The Difference Between Mortgage Prequalification and Preapproval?

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I’m often asked by home buyers what the difference is between mortgage prequalification and preapproval. Josh Covett of Movement Mortgage, an excellent mortgage lender, sums up the difference pretty succinctly:

Preapproval Vs. Prequalification: These terms are often used interchangeably — but there are big differences between the two. With a prequalification, the lender is performing a few checks on the prospective borrower’s finances to determine the home loan amount they may qualify for. A prequalification letter tells you how much the client will probably be able to borrow from the lender, if further examination supports the preliminary findings.  For a preapproval, however, the mortgage lender examines and verifies the client’s debt, income, savings, assets and credit report. The information must satisfy the lender’s underwriters that this client is a low risk and a good prospect for repaying the loan. Preapproval is more vigorous vetting and a lengthier process than prequalification; buyers who submit to the process and are approved are serious buyers who are worth your time and energy.  Buyers who can show a preapproval letter to a seller are more likely to be seen as serious, potential buyers who can qualify for the loan and follow through on their bid. 

If you’re thinking about buying a home, it’s worthwhile to ask your lender if they’re going to provide a mortgage prequalification or preapproval prior to writing your offer.   A few other tips in selecting your lender:

1. Do not use a lender with who does not provide you with his or her cell phone number.

2. Be very wary of a lender who does not have a local area code.

3. Use a lender who is either recommended by a trusted real estate professional or trusted friend or family member.

4. Do not select a lender based on an internet promotion, free toaster giveaway or radio advertisement.

Image Credit: Copyright Alan Cleaver Via Creative Commons License

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Jon Effron is widely regarded as one of the leading Realtors in Atlanta, working with both buyers and sellers throughout the metro area to maximize their real estate investments. In 2014, Jon was the #1 individual agent at Keller Williams Intown, one of the largest brokerages in Intown Atlanta. Prior to becoming a Realtor, Jon was the Vice President of Development at Tujay Group, an Atlanta real estate development firm. His career pre-real estate included stints at ABCNews.com, eGroups (now Yahoo! Groups) and Elite Traveler magazine, where he served as the Vice President of Marketing.