Prequalified vs. preapproved: what’s the difference?

And if there’s a difference, which one is better?

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When it comes to buying a home, you want to have on your belt all the tools that are going to help you speed up the process and win offers.

One of the best things you can do is to be pre-approved for a mortgage. But do not confuse being prequalified with being pre-approved. 

Although being prequalified has its advantages, its not a substitution to being pre-approved.

¿What is pre qualification?

Being prequalified will give you a ballpark of how much money a lender can give you. With a ballpark in mind, you can start looking for houses in a specific price range. But being prequalified is just to give you an idea of what you might be able to get. 

Since being prequalified is just a ballpark, your lender makes its calculation using basic information that you provide.

Some lender will prequalify you over the phone. 

As I said earlier, the purpose of being prequalified is so you have a basic idea of the price range of houses you can start looking. Although the lender will give you an idea of the amount of mortgage you might get, it’s not a guarantee on the lender’s end that you will be approved for a specific amount.

¿What is a pre-approval?

While getting prequalified is quick and easy, getting pre-approved takes a little more work.

To be pre-approved, a lender will need to verify your financial information and submit your loan application for review and signature. 

This means that the lender will take an in-depth look at your finances, statements, bank accounts, credit report, etc.

So being pre-approved means that the lender carefully scrutinized your finances and gave you a specific amount for which you are elegible. Usually a pre-approval letter is good for 90 days.

What are the advantages of being pre-approved?

Having a pre-approval letter will give you a competitive advantage when you start looking for your house. A pre-approval letter shows the sellers that you are a serious and safe buyer to make a transaction worth hundreds of thousands of dollars.

A pre-approval letter will help speed up the process of being approved for a mortgage. In a market where houses are selling fast, speeding up the process will definitely help you buy the house you want.

How to be pre-approved?

That a lender gets to see the details of your financial life is not the definition of fun. But if you have the necessary documents before you meet with the lender, the process will be easy. Here are some things your lender will need:

ID:

  • Social security number and card.
  • A copy of your residence card (if you are not a citizen).
  • Credit history. If you do not have a credit history, you will need a lender that manually approves
  • your financial situation (manual underwriting).
  • ITIN number if you do not have legal status.
  • Employment verification (Proof of status and annual salary).

Income:

  • Pay stubs for the last 2 months.
  • W-2 forms from the last 2 years.
  • Additional income proof.
  • Federal tax returns (personal and business) with all pages and dates for the last 2 years.
  • Bank statements verifying that you have the funds to cover down payment and closing costs. (last 2
  • months)

Possessions:

  • If a friend or relative is helping you with the down payment, you need a letter saying that your down
  • payment is a gift, not a debt.
  • 401(k), IRA, Stocks, and mutual fund statements.

If you’re thinking of starting your home buying process, contact me to guide through the process. I’ve helped dozens of families successful navigate their pre-approval process in order to buy a house.

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Flor Ibarra

Dallas-Fort Worth Realtor

I help families and investors in north Texas find and sell their properties.

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