Along with the myriad of other words thrown at you when you’re shopping for a home, you’ve probably heard “prequalification” and “preapproval” and pretended to know what they meant. They’re somewhat self-explanatory, right? Sort of.

The Consumer Financial Protection Bureau defines both these as “a letter from a lender that specifies how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions.” Due to the diversity in different lender’s practices, there are some who only do one or the other, using the terms interchangeably, and there’s some that do both (that’s us). For the ones that do both, I’ll explain what the difference is and why they’re both important. Remember – this isn’t a guarantee of loan amount or approval.

Prequalification

Prequalification is good for those who just want to dip their toe in the water or want to know a general price range when you’re beginning to look. Doing a prequalification can be done over the phone or in person. You give your mortgage banker the big-picture view of your finances, including debt, income and assets, and a look into your credit. After they review the information you’ve given them, they’ll give you a rough estimate of how much you could be approved to borrow.

Preapproval

A preapproval is much more thorough and definitive. For it, you’ll have to put in an actual mortgage application and supply your lender with any and all documentation to give them an in-depth look at your financial narrative. It’s more work up front, but it has many more advantages over doing a prequalification.

Since there’s a deeper analysis and verification of your finances and credit history, doing a preapproval helps you see if there’s any discrepancies or credit issues that can be taken care of now instead of popping up during the home stretch, dragging out the loan process or even keeping you from getting the home you want. In today’s competitive market, having a preapproval letter along with your offer shows the seller you’re serious about buying the home, that you can afford it and shortens the loan process because you’ve already supplied a lot of the information your lender would need (some sellers will choose a shorter contract period over an all-cash offer).

Here’s a secret that’s not really a secret: If you want to skip the line, you don’t have to do a prequalification – you can go straight to the preapproval.

Whether you’re interested in a prequalification or a preapproval, you can reach out to your local Flat Branch expert to learn more.

What's the Difference between Pre-qualification and Pre-approval?