What’s the Difference Between Prequalification and Preapproval?

Two very different words used in the mortgage industry that are many times used as the same term. When applying for a home loan, knowing the difference between these two terms can save you time and headaches.

Prequalification

Prequalification is an unofficial estimate of how much house you can afford. An educated guess will be made based on your verbal or written submissions of income, finances, and credit history. Your credit may, or may not be pulled during this evaluation. I can calculate your debt-to-income and write you a letter of prequalification stating how much you should be able to borrow. The prequalification is based on vague figures and does not take into account all your financial factors. The main benefit of prequalification is getting a general idea of how much you can afford to spend on a home.

Pre-approval

Pre-approval on the other hand carries more weight. In order to be pre-approved for a loan you provide me with documents such as recent pay stubs, tax returns, bank statements, etc. These will be analyzed with other information submitted by you and pulling your credit report. I will then produce the pre-approval letter that certifies that you have the resources to afford to buy a home for a certain amount. The pre-approval letter will usually specify the interest rate you will pay for borrowing such sum. Sellers usually require buyers who are pre-approved because it is proof that the buyer has financial backing and are prepared to pay the required amount. It also helps your Realtor in the search for homes and subsequent negotiating when a maximum payment/loan amount is known.

If you are in the preliminary stages of finding a home, please contact me anytime to see how much you qualify for, or go to my secure online application!

John Lyng is a Mortgage Loan Officer with Supreme Lending. He is experienced with traditional bank programs, as well as alternative programs to help people get into their home. John has a varied background in working with mortgage banks and non-profits, and believes in guiding families to prepare for affordable homeownership.

If you have questions about this or any mortgage-related topic, please contact John Lyng directly at 214-862-3579, or send an email to John.Lyng@SupremeLending.com.