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The difference between a Prequalification and a Preapproval

5 Minutes

If you’re shopping for a mortgage, you’ve likely heard the terms “prequalification” and “preapproval”, and are wondering how they differ.

Many lenders use these terms interchangeably, but they are not the same thing.

They are both actions a lender takes to determine how much money is appropriate to lend you. The difference lies in how closely your finances are examined to determine that figure.

Key Takeaways

  • A Prequalification consists of a basic check of your finances, and is not confirmed by a credit check.
  • A Preapproval consists of a thorough inspection of your finances, where documents like tax returns and W2s are submitted, and a credit check is performed.
  • Remember you may prequalify or be preapproved to borrow more house than you can actually afford

The excitement of wanting to buy a home sometimes drives people to online home-listing sites, or a real estate agent before going to their credit union.

It may be a better idea, however, to contact your credit union (or chosen lender) before you start looking at homes, so that you can get prequalified or preapproved. It’s also worth noting that securing your mortgage through a credit union as opposed to a bank may offer additional benefits, such as: more personalized service, lower rates, fewer fees, an easier approval process, and working with a loan officer who will advocate for you.


Getting prequalified is very quick and easy since it doesn’t require you to provide any documentation. It’s basically a generic estimate of what you might qualify for if everything you tell the lender verbally proves to be true when you submit your documentation.
To get prequalified, the lender conducts a basic overview of your finances: how much money you make, how much you owe on credit cards, car loans, student loans, and any other debt you may have. All of this information is self-reported, and there’s no credit check to verify it.
The goal is to see if there are any red flags that would prevent you from qualifying for a mortgage.


A preapproval is very similar, except it takes longer because the lender takes the time to verify the information you provided. This makes it much more powerful when shopping for a home.
Getting preapproved requires you to provide documentation to back up the information you verbally share with the lender. You may need to provide copies of previous years tax returns, W2’s, and recent pay stubs to verify your income. Your credit is pulled and a complete review of your income, debts, and assets is performed.
Again, being prequalified or preapproved does not guarantee you will get a loan. It only indicates that if the information you submitted is accurate and remains the same, there is a high probability that you will receive a loan within the financial range discussed when you actually apply.

What A Preapproval or Prequalification Letter Means To Sellers

Depending on your lender and the information you’ve provided, you will receive a formal prequalification or a preapproval letter stating the loan amount you’ve been approved for. When you find your dream home, you can present the seller with your preapproved loan document, showing them that not only are you serious about buying their house, but you’ve already been preapproved for financing.
The difference between verified information (preapproval) and unverified information (prequalification) has some importance. It speaks to how serious you are about buying a home, and the effort you’ve put into the process of securing a mortgage to do so.
Having one of these letters in hand when you begin shopping and negotiating on a home can give you an edge over other potential buyers because it tells the seller you can borrow enough money to back up your offer. It could be the difference between getting the house you want, or losing it to another buyer who’s offer is accepted because they have a preapproved loan.

Points To Remember

It’s important to note that prequalification and preapproval letters are typically only valid for 90 days, and are not a guarantee you’ll get a loan. Your income, debts, assets, and any other information used to issue the preapproval must be re-validated once you’ve found a home, which is done when the application moves through processing and underwriting. You can read about The 5 Steps Of The Mortgage Process if any of these terms are unfamiliar to you.
In addition, the property must qualify for the chosen loan program and must meet all applicable guidelines before you can set a date to officially close on your mortgage.
Lastly, please remember that you may prequalify or be preapproved to borrow more than you can afford. Make sure you evaluate your finances to know how much you can comfortably spend on your mortgage payment, so you look at homes that are priced accordingly.

Ready to take the next steps?

Contact your credit union mortgage loan officer to learn more about getting a mortgage.

Let’s get started!

Ready to take the next step?

Contact your mortgage loan officer to learn more about getting started.

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