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How it works: prequalification vs. preapproval

Victor Polich
Mortgage Banking

In today’s competitive real estate market, getting prequalified or preapproved for a mortgage loan can provide the edge you need to get the home you want. Both steps are extremely helpful, but there’s a distinct difference between the two.


Before you begin looking for a home, getting prequalified for a mortgage is an excellent first step. It’s a quick way to gauge how much you can afford to spend.

Here’s how it works:

  1. Verbally provide your personal financial information to your lender and authorize them to pull a credit report.
  2. Based on this information, your lender will estimate how much you would be eligible to borrow and your monthly mortgage payments.
  3. Your financial information is not submitted to an underwriter for a review, nor is it formally verified.
  4. It’s important to note that obtaining a prequalification is NOT a guarantee of a loan.

Getting preapproved in advance of looking for a property goes beyond prequalification, providing you with a conditional commitment from a lender that may help real estate agents and sellers take your offer more seriously.

Here’s how it works:

  1. Complete a mortgage loan application and be prepared to provide your lender with documentation to verify your finances, including:
    * Pay stubs that cover the past 30-day period
    * W2 forms for the past two years
    * Bank statements for the past two months
    * Proof of investment and retirement accounts
    * Federal tax returns for the past two years (necessary only if you are self-employed, employed by a family-owned company, or receive bonus or commission income)
  2. Once you have completed the previous step, your application is submitted to underwriting for a formal credit review and decision, including terms and conditions that must be met for final loan approval.
  3. Remember, a preapproval is a conditional commitment from a lender to secure your mortgage financing, which helps make you a more attractive candidate when purchasing a home. It isn’t a guarantee, but it can be very helpful to you in your search for a new home.

A preapproval letter assures the seller that you have funds for the down payment and that you have a lender willing to provide the mortgage you need to buy the home you want.

Here’s an infographic contrasting prequalification and preapproval that you might find useful.

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