Getting Prequalified vs. Preapproved
Before you start shopping for a new house, understand the difference between these two terms.
If you’re actively searching for a house, you’ve probably heard about the processes of “getting prequalified” and “getting preapproved." You might have even completed one or both. But what exactly do these terms mean? And which one is right for you?
Put simply, prequalification is a lender’s brief assessment to give you a general idea of how much mortgage you can afford. Preapproval is a lender’s in-depth evaluation of your finances to determine how much mortgage they will likely grant you.
PREQUALIFICATION generally includes:
- No credit pull
- No in-depth analysis of your finances
- Quick process
- Not as valuable to sellers
PREAPPROVAL generally includes:
- More complex process
- Completion of the mortgage application
- Hard credit pull (the potential lender reviews your credit)
- Valid for a set time period (usually 120 days)
Prequalification can be used as a handy estimate when you begin your house search. You’ll know with greater certainty what your budget is and what range of home prices are appropriate for you.
Preapproval is more helpful when you enter the serious stage of homebuying, as it usually includes completing a mortgage application and providing documentation regarding your income, debts and credit history. Keep in mind you’ll need to provide W-2s, recent paystubs, proof of any additional income, account statements and tax returns. In addition, the lender usually does a hard credit pull, meaning a credit inquiry is made and noted on your credit history.
To summarize, prequalification is a basic estimate of how much home you can afford to buy. Preapproval is proof that a lender has granted initial approval to you for a specific loan amount.
So, why get preapproved? Because you’ll have a good understanding of what your budget is and will have more negotiating power as a preapproved buyer. You’ll send a clear signal to sellers that you are a preferred buyer making a serious offer.
Get a Customized Quote
At UW Credit Union, first-time homebuyers get up to $1,000 off closing costs.* Get started by exploring loan options, then get a customized estimate with our rate quote tool. When you’re ready, start your application to get pre-approved.
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Our experienced mortgage loan officers will support you every step of the way.