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Preapproved vs. Prequalified: Which One Is Better for You?

September 30, 2015 | By

There’s a good reason why Audrey Fox, a broker for Howard Hanna Real Estate Services in Elizabeth City, NC, insists homebuyers be preapproved by a lender before they start to visit homes on the market.

“I’ve literally taken an offer from the property back to my office and by the time our buyer had contacted a lender and gotten a preapproval, the property was off the table,” she says. “Now, I insist that they have preapproval up front.”

Fox likens having a preapproval to doing your homework before the big test: It’s not necessarily fun, but it’s a really good idea to do it.

Still many buyers don’t bother. “Buyers often are eager to start looking at homes and tend to leave what they view as the boring, bureaucratic part of the homebuying process for last,” Michael Highfield, associate professor of finance and head of Mississippi State University’s department of Finance and Economics, tells

“But in this competitive market, any serious buyer should pursue a preapproval from a lender in advance to beginning a home search,” he adds.

What’s a Preapproval Anyway?

It’s important for prospective buyers to understand the difference between a prequalification and a preapproval.

A prequalification is a conversation, says Staci Titsworth, a regional sales manager and vice president at PNC Mortgage. “It’s talking with a loan officer, nothing formal.”

A preapproval, on the other hand, is taking that conversation and solidifying it into a formal loan application and having that application reviewed and approved by underwriting. “The lender verifies the borrower’s information and documentation to determine exactly how much it would be willing to lend to that borrower,” she explains.

The documents you’ll need to secure a preapproval are the same you would need to get a mortgage — pay stubs, the last two years’ W-2s, your last two federal returns, two months’ worth of bank statements of all types of accounts, and your credit report. Preapprovals are good for a certain period. If it takes a long time to find that perfect place to call home, you may need to update your information to get a new preapproval.

While a preapproval is not a loan commitment, having one can help speed the underwriting and loan approval process and “is something we generally advocate for,” says Patrick Wade, who trains staff for nearly 80 credit unions in his role as business development and sales manager at First Heritage Financial in Trevose, PA.

Warmer Welcome

There are advantages to having a preapproval for all parties in the real estate transaction, Patty Da Silva, a real estate agent and owner of Green Realty Properties in Davie, FL, tells “There are 40 million errors on credit reports. You need to have time to fix that if you happen to be one of them.”

Often the credit blemish, once discovered, can be explained. Notes Titsworth: “Maybe they’re debt-heavy or just missed a payment on a car loan after they changed jobs,” she says. “If the buyer can provide an adequate letter of explanation to the loan officer for the underwriter to review, they may still be preapproved.”

Being preapproved also helps you get an accurate idea of how much home you can afford, which can help narrow your home search and ensure you only look at houses that are truly in your price range.

Plus, a preapproval letter helps real estate agents and sellers know that you’re a credible buyer and able to act fast when you find the home you want to buy. “When the seller has two offers, one that’s preapproved and one that’s not, those are two very different scenarios for a seller,” says Titsworth.

Going through the preapproval process can also help borrowers understand when they’re not ready for homeownership, points out Wade. “We’re not here to churn out loans. We want to put people in loans that they can afford.”




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