Mortgage prequalification vs. preapproval: How to time these two tools when shopping for a home
Looking to buy a home? Let's talk about two important steps you’ll need to take if you’re planning on getting a mortgage: prequalification and preapproval. These processes help you determine how much house you can afford, each in a different way.
Prequalification is like a quick peek into your wallet. It gives you a rough idea of what you could borrow with a mortgage, based on basic information only. Preapproval, on the other hand, is a deep dive into your finances, when a lender takes a close look at your finances to give you a more precise and reliable estimate of how much they’re willing to lend you.
Both steps are important, depending on where you are in your homebuying journey. Here’s a closer look at what each step means.
???? Must read: How to get the lowest rate on your next mortgage
Prequalification: What it means and how it works
Mortgage prequalification is an informal estimate of how much you may be able to borrow. It’s based on information you provide, without any verification from the lender regarding its accuracy. Typically, lenders don’t conduct a hard credit check or verify your financial details, and you usually don’t need to submit supporting documents.
Prequalification often serves as the first step in the mortgage process, helping you understand your potential homebuying budget.
Who prequalification is best for
Prequalification is best for prospective homebuyers who want to assess their borrowing capacity. It provides a quick way to evaluate your financial readiness to purchase a home without the need to complete a lengthy mortgage application or gather personal and financial documentation.
Benefits of prequalification
Prequalifying for a mortgage helps you to understand how much home you might afford before you shop, with benefits that include:
How to get started with mortgage prequalification
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Preapproval: What it is and how it works
Preapproval is a much more comprehensive process than prequalification. Mortgage preapproval is a lender's conditional commitment to offer you a specific loan amount, usually good for 90 days. It involves filling out a full mortgage application, uploading financial documents and undergoing a hard credit check.
You’ll want to get preapproved for a mortgage before you begin your house hunt. Not only does preapproval give you a clear budget, but it signals to sellers that you’re a serious buyer.
Who preapproval is best for
Preapproval is best for serious homebuyers ready to make offers. However, it may not be the best choice for those not ready to buy a home, as it can lower your credit score by up to 10 points.
Benefits of preapproval
How to get started with mortgage preapproval
???? Expert tip: Transparency is key
It's crucial to maintain financial stability and transparency throughout the entire homebuying process. This will help ensure that your mortgage preapproval translates into a successful mortgage closing.
Remember: Preapproval is conditional, with final approval depending on your stable, consistent employment, credit score and debt levels — all of which can raise your debt-to-income ratio and lower your credit score.
Note too that after you’ve submitted an offer on a house, the property’s appraisal must meet or exceed the purchase price of the home you’re buying.
Dig deeper: How much does a 1% mortgage rate change actually matter?
Preapproval vs. prequalification: How they compare — and where they differ
Prequalification | Preapproval | |
Purpose | Establishes your homebuying budget as a first step before you shop | Provides lender-vetted details as a critical step to make offers on homes you want to buy |
Process type | Informal estimate only | Conditional commitment from a lender |
Turnaround | Within minutes, depending on lender | Same day or up to 7 days, depending on lender |
Application type | No formal application | Full mortgage application |
Credit check | Soft credit check may be required | Hard credit check is required |
Verification | Self-reported information only | Lender will thoroughly verify your personal and financial information with official documents |
Loan amount | Provides an estimate only | Specifies an exact loan amount |
Interest rate | Possible ranges only | Specifies interest rate, with some lenders offering “lock and shop” that secures rate while you search for a home |
Validity period | None | Usually up to 90 days |
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FAQs: Mortgages, homebuying and your budget
Learn more about how prequalification, preapproval and homebuying works before applying for a mortgage.
Does mortgage prequalification mean I’m approved?
No. Prequalification results in an informal estimate that doesn’t guarantee you’ll be approved for a mortgage. To learn whether your loan is approved, you must submit a formal mortgage application.
Which comes first: mortgage prequalification or preapproval?
Though some lenders use these terms interchangeably, prequalification is the first step in getting a mortgage, resulting in a rough estimate of how much you may be able to borrow when you’re ready to apply. Preapproval is the result of a full mortgage application, providing a written statement from lenders willing to let you borrow money for a home .
What is a mortgage rate lock — and how does it work with preapproval?
A mortgage rate lock is a guarantee from a lender that your interest rate won't change for a set period of time — often 30 to 60 days or more. Some lenders offer “lock and shop” programs with preapproval, allowing you to lock in a rate while you're still house hunting, either free or for a fee, depending on the lender. Learn more about “locked in” rates in our guide to mortgage rate locks.
Should I get preapproved by multiple lenders?
You might want to. Getting multiple preapprovals allows you to compare offers and find the best rates and terms for your property, budget and goals.. Unlike applying for other types of credit, if you apply for several mortgage preapprovals within 14 to 45 days, bureaus often count it as a single credit inquiry. This makes for minimal impact on your credit score, even if you apply with multiple lenders.
Can I qualify for a homebuyer program if I’ve already owned a home?
Yes, there are a surprising number of homebuyer programs for senior buyers and retirees, for people who've purchased a home before or even people who need help paying off their current home, with liberal definitions of what makes you a “first time” homebuyer.. Learn more about eligibility, types of help and where to look in our guide to homebuyer assistance.
What is a debt-to-income ratio?
A debt-to-income ratio — or DTI — compares how much debt you owe against your gross monthly income expressed as a percentage. Lenders use your DTI to determine how likely you are to repay an additional debt, like a mortgage. Typically, a DTI of 43% is the highest percentage you can have and still qualify for a loan.