Pre-qualification and preapproval sound similar, but typically only one — preapproval — will put you ahead of the homebuying competition.
What is mortgage pre-qualification?
Generally in the pre-qualification phase, you describe your credit, debt, income and assets, although application processes vary by lender. Based on this overall financial picture, the lender estimates how much you may be able to borrow. Some lenders will also do a credit check. You can get pre-qualified over the phone, online or in person.
Getting pre-qualified can give you a sense of your financial readiness and introduce you to various mortgage options. It’s often a good step for first-time home buyers who are just testing the waters and aren’t ready to jump in.
» MORE: Use NerdWallet’s mortgage pre-qualification calculator
What is a mortgage preapproval?
A mortgage preapproval takes the process to the next level. Preapproval requires you to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report.
You’ll provide information in the form of W-2s, a current pay stub, a summary of your assets and your total monthly expenses, and if you already own real estate, a copy of your mortgage statement and home insurance policy.
» MORE: See the documents needed for a mortgage preapproval
If you satisfy the requirements, you’ll get a preapproval letter, which states the amount and type of mortgage the lender is willing to offer, along with the terms. You can show the letter to sellers and their real estate agents when making offers on homes.
A preapproval offer isn’t a guarantee, but it shows you’re a serious buyer, which can give you leverage in a competitive market.
Skip pre-qualification and get preapproved?
You don’t have to get pre-qualified first. If you know you’re financially ready to buy and want to start home shopping, you can skip pre-qualification and apply for preapproval.
» MORE: Learn how to get preapproved for a mortgage