Prequalified vs. preapproved: what’s the difference?

When you’re preparing to buy a home, you’ll likely hear the terms prequalification and preapproval. While they both estimate how much you may be able to borrow, there’s a key difference.

A mortgage prequalification is a quick estimate based on basic financial information provided. On the other hand, a mortgage preapproval is a more in-depth process that involves a credit check and verification of your income, assets, and debts.

Knowing the difference between the two can affect your buying power, confidence, and how seriously sellers take your offer.

How do lenders use mortgage approvals?

Getting prequalified or preapproved is one of the first steps toward turning your homeownership dreams into reality. Both give lenders an idea of what you can afford while also providing you with a clearer picture of your financial standing. However, there are a few things to keep in mind as you move forward:

• Every lender handles mortgage approvals differently. The steps and terminology vary from lender to lender. Many lenders use “prequalification” and “preapproval” interchangeably. Ask your lender exactly what their process involves.
• Neither is a guarantee of approval. Prequalification and preapproval are estimates of what you can borrow. After you find a house you want to buy and your offer is accepted, you’ll officially apply for a mortgage. Your lender will review your finances and decide then whether to approve you for the loan.

At Rocket Mortgage^®, we make the approval process as seamless as possible. We’ll provide feedback on your options and eligibility when you apply, and you can complete the entire process online.

What’s a mortgage prequalification?

Prequalification is a preliminary step that allows buyers to get a general sense of how much they can borrow to buy a home. Prequalification usually relies on self-reported information and a soft credit pull. The lender will provide a prequalification letter or email with an estimate of how much it expects you can qualify to borrow.

While it’s not a guarantee of a loan, it gives you a general idea of how much you can afford to borrow. Prequalification makes it easier to set a home buying budget and narrow your options when looking at homes.

It’s also a good way to understand what aspects of your finances may need improvement. If you can’t qualify for a large enough loan to afford the home, you can work on improving your credit score, reducing your debts, increasing your income, and saving more for a down payment. All of those will make you more attractive to lenders and help you qualify for a larger loan with better terms.

What is a preapproval?

Preapproval is an estimate based on a more thorough review of your finances and is, therefore, more accurate than prequalification.

If you’re wondering how to get preapproved, start by choosing a lender and applying. Your lender will run a hard credit check and ask to review your financial documents.

It helps to gather your documents in advance and check in with your lender to understand the process. Avoid making any significant financial changes, such as switching jobs, buying a car, or opening new credit accounts until after the closing. Consistency is key during this stage.

Common requirements include:

• Income tax returns
• W-2 or 1099 forms
• Recent pay stubs
• Bank statements
• Identification
• Your Social Security number
• Permission to run a hard credit check

The lender will provide a preapproval letter, which is a conditional loan offer that estimates how much it expects you’ll be qualified to borrow.

Preapproval carries more weight with agents and sellers. Preapproval shows you’re ready to buy a home and can qualify for a loan that will allow you to do so. Sellers often consider this when reviewing offers, especially in a competitive market, and may use this to help negotiate the final purchase price.

Also, it’s important to know that preapproval usually is valid for 60 – 90 days. Waiting until you’re ready to buy before applying for approval will help you avoid it expiring before you find a home to buy.

When do you need prequalification and preapproval letters?

If you’re in the early stages and just starting to explore your loan options, a prequalification can give you an idea of how much house you can afford. It’s a low-commitment way to set expectations and begin your search.

If you’re ready to start touring homes and make an offer, preapproval is typically the better choice. It shows agents and sellers that you’ve done your homework, your finances have been reviewed, and you’re ready to buy a home.

Preapproval and Verified Approval

With Rocket Mortgage^®, you can apply for a Verified Approval¹ – an initial loan approval that has been reviewed by an underwriter. This extra diligence reduces the risk of a home sale falling through due to a lack of financing.

Verified Approval can offer buyers peace of mind and an edge over other buyers in a competitive market. Once you get approved, Rocket Mortgage will issue a Verified Approval letter. You can show this to your real estate agent and sellers as proof that you have enough financing to buy a home.

What to do after you’ve been prequalified or preapproved

Once you’re preapproved, here are the next steps to buying a home:

• Start touring homes within your budget. Use the amount on your preapproval letter as a guide to filter your home search. For example, if you’re preapproved for $400,000, you can start touring homes under that amount. Don’t forget to leave room for negotiation and closing costs.
• Connect with a trusted real estate agent. A real estate agent is your partner through the next phase of the mortgage process. They’ll help you navigate the market, schedule showings, write competitive offers, and understand what to look out for.
• Review your preapproval letter with your lender. Make sure you understand any conditions attached to your preapproval, such as employment verification or documentation required later in the process. This helps ensure there are no surprises when it’s time to finalize the loan.
• Hold off on big financial changes. Try to avoid large purchases, taking on new debt, or changing jobs before closing. These can all affect your final approval.

The bottom line: There’s a time for prequalification and preapproval

Mortgage prequalification is a good first step if you want a general estimate of how much you can borrow to spend on a home. Preapproval takes it one step further by verifying the financial information you submit to provide a more accurate estimate of how much you can afford to spend. Getting approved early in your home search can help you stay focused on homes within your budget, avoid unnecessary stress, and make a stronger impression when it’s time to submit an offer.

Ready to start your home buying journey with confidence? Take the next step and start the process for initial mortgage approval online with Rocket Mortgage^®.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance and appraisal as well as a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid on jumbo loans or for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.