Prequalified vs. Preapproved: What Is the Difference and Why It Matters

Couple looking at floor plan with real estate agent holding keys to their new home.

A prequalification is a good start to the home loan process, but being preapproved means you’re almost home — literally. Getting preapproved means greater security and purchasing power for your home search.

Starting a home search, especially for first-time buyers, can seem daunting where mortgage terminology is concerned.

Two words, in particular, that you should know at the outset are prequalification and preapproval, because, while similar, they do have separate functions in the mortgage process. So, what is the difference between them and why does that matter to you?

The First Step

Once you decide to start your house hunt and have thought about what price range you think you can afford, that’s where the prequalification process comes in.

It’s a quick and relatively simple process that determines how much a prospective homebuyer is eligible to borrow on a home loan. You can start the ball rolling by talking to an experienced loan officer.

“We’re going to talk about how much money you make, what kind of assets you have and your credit score,” said Michelle Herring, operations manager at IBC Mortgage in Austin, Texas. “We’re going to be looking at what your stated income is and what price range you’re looking at to make sure we meet the debt-to-income (DTI) requirements.”

The primary benefit to getting prequalified up to a certain amount for a loan is that you are indicating to real estate professionals and builders that you are serious about looking for a home in a certain range. Prequalification, however, does not mean that you are preapproved for a home loan.

Purchasing Power

Getting preapproved is the next step, particularly if you want greater security and purchasing power for your home search. This can be important if you need to move quickly on buying a house or if you live in a hot market where houses in your price range are receiving multiple offers.

“Preapproval means you are credit-approved through a financial institution pending the property you select,” said Lahoma Dade, bank officer, marketing at IBC Mortgage in Austin. “When you’re preapproved, you have the security of knowing that the only missing piece is the property.”

Making sure your credit is in good shape is important because your credit score drives your interest rate, which in turn drives the total amount you will pay for your loan over the life of the loan. — Lahoma DadeThe preapproval process, which typically takes seven to 10 business days, uses the information from prequalification and adds in verified documented information. You’ll be asked to provide more detailed financial information, such as W2s, tax returns, paystubs and asset bank statements — and your credit report will be pulled.

Once you’ve been preapproved, you may be more appealing to sellers who are considering several offers on their property as your financing is already sorted. “In a hot market, you have a difference between a 30-day contract and a 17-day or 10-day contract,” Dade said. “We’re talking about waiting for the appraisal (of the home) versus waiting to get fully approved.”

By waiting to get preapproved, you could run the risk that you won’t qualify for the amount you want and lose the house. “The last thing we want is for a borrower wanting to go get a house and we haven’t looked at their tax returns and we determine they don’t qualify,” Herring added.

Know Your Credit History

Herring and Dade cautioned that before you head to a bank to try to get prequalified or preapproved, it’s important to understand your credit history and that you can — and should — be proactive about knowing where you stand and fixing any problems.

You can order your free annual credit report from and go to to get your free credit score. “It’s not going to be the mortgage (credit) score, but it gives you a fair ballpark number,” Dade said.

Making sure your credit is in good shape is important because your credit score drives your interest rate, which in turn drives the total amount you will pay for your loan over the life of the loan, she added.

Ideally, you want a score of 740 or above to get premium interest rates, but a score of 640 is a good starting point. Below that and you could face difficulty getting qualified for a loan or have to pay higher interest rates.

“Buying a home is one of the biggest, life-changing moments in people’s lives,” Herring said. “It’s stressful for the homebuyer and our job is to help guide the buyer and make the process as seamless as possible.”

Judy L. Marchman is a freelance writer and editor, with 20 years of magazine and book publishing experience. She covers a variety of subjects, including home-related topics. Her work has appeared in Kentucky Monthly, Keeneland Magazine and the Official Kentucky Derby Souvenir Magazine, among other publications.

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