Prequalifying vs. Preapproval - Home Mortgage Loans

Prequalify vs. Preapproval

Some people are confused about the difference between prequalifying and preapproval. Pre-qualification is an informal way to see how much you may be able to borrow. You can be "pre-qualified" over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford.

Sometimes a lender may have to run a credit check and may require other documents before they will issue a certificate of prequalification. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender's actual commitment to lend to you. Preapproval is more formal and binding and requires that you submit tax returns and other important documents to the lender so that they can determine if you are a good risk for the particular home mortgage loan that you are applying for. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.