What is the Difference Between a Mortgage Prequalification and a Preapproval?
If you're planning to buy a home in Lafayette, New Iberia, or anywhere in Acadiana, you've probably come across the terms mortgage prequalification and preapproval.
They're easy to confuse, but they serve different purposes. Understanding how they differ can help you feel more prepared and confident as you start the homebuying process.
What is Mortgage Prequalification?
Mortgage prequalification is an early step in the homebuying process that gives you a general idea of how much you may be able to borrow.
It’s based on basic financial information you provide to a lender, including your estimated income, credit background, the amount you’re looking to borrow, and how much you have available for a down payment.
Prequalification is based on self-reported information, which means the lender won’t verify your income with pay stubs or bank statements, and they typically won’t run a full credit check.
Instead, they use the details you provide to give you a ballpark loan estimate, using standard lending guidelines and debt-to-income ratios.
One of the biggest advantages of prequalification is how quick and easy it is. Most lenders offer the process online, and it can usually be completed in just a few minutes.
There’s no cost involved, and since most prequalifications use a soft credit inquiry, your credit score won’t be affected. That makes it a great starting point if you’re beginning to explore homeownership in Acadiana.
Keep in mind, though, that prequalification has its limits. Since it’s based on unverified information, the loan amount you’re quoted may not reflect what you actually qualify for once full documentation is reviewed.
Also, sellers and real estate agents typically don’t treat a prequalification letter as proof of financing. It’s seen more as an initial estimate than a commitment. If you're planning to make a serious offer, you’ll likely need to take the next step and get preapproved.
What is Mortgage Preapproval?
Mortgage preapproval is a more in-depth look at your finances than prequalification. This step involves filling out a full mortgage application and providing detailed financial documents such as recent pay stubs, bank statements, tax returns, employment info, and a full breakdown of your assets and debts.
Unlike prequalification, preapproval isn’t based on estimates. The lender verifies everything. They’ll pull your full credit report, confirm your job and income history, and take a close look at what you owe versus your income. Many lenders also run your file through an automated underwriting system to flag any potential issues early on.
In most ways, this mirrors the full approval process, except for things tied to a specific home, like the appraisal or title check.
Once everything checks out, you’ll get a preapproval letter stating exactly how much you’ve been approved to borrow, pending the final steps tied to a specific property. This letter carries real weight with sellers and real estate agents. It shows that you’ve already passed the major financial hurdles and are ready to move forward.
Preapproval does take more time and effort than prequalification. It usually takes a few days, depending on how quickly you can turn in your paperwork. It also includes a hard credit pull, which might cause a small dip in your credit score. But for serious buyers, the benefits of preapproval far outweigh those minor drawbacks.
Read more: 10 Tips for First Time Home Buyers
Which One Do You Actually Need?
It really depends on where you are in the homebuying process. If you’re just starting to look around and want a rough idea of what you might be able to afford, prequalification is a great first step. It’s quick, doesn’t require much paperwork, and can give you a general price range to work with.
But if you’re ready to start touring homes with a real estate agent or you’ve already found a place you love, then preapproval is the way to go. Most sellers won’t take an offer seriously unless there’s a preapproval letter to back it up.
It shows you’ve already done the legwork and are ready to move forward. Keep in mind, a preapproval letter is good for 90 days, so it’s best to wait until you are close to buying before completing this step.
Read more: Understanding the Most Common Home Loan Options
Making the Right Choice for Your Situation
Here’s the bottom line: prequalification is based on unverified information, so it’s more of an estimate. Preapproval is based on verified documents and gives you a conditional loan offer. If you’re getting serious about buying, go with preapproval. Whichever option fits your needs, getting expert guidance can make the process a lot smoother.
If you're looking for a local mortgage lender in Acadiana with competitive rates and personal service, we’re here to help.
Stop by one of our branches in Lafayette or New Iberia and speak with one of our home loan specialists. We’ll walk you through your options and help you get one step closer to homeownership!