Prequalification vs Pre-Approval for a Mortgage Loan
While some people use the terms prequalified and preapproved interchangeably, there are significant differences. Generally, prequalifying is the first step, while preapproval is the second and more significant step.
Prequalification is a process conducted by experienced mortgage brokers and is based on consumer submitted information. Pre-Approval is a process usually conducted by a mortgage banker or other lender, and is based on consumer data in the form of a credit report and other third party generated documentation.
Prequalification generally costs the applicant no fee, is quick, but does not include an analysis of credit information or the applicant ability to purchase a house. Consequently, prequalification does nor-carry the same financial weight as a preapproval by a lender. Notwithstanding, prequalification can be helpful prior to making an offer to purchase a home.
Following is a comparison:
Will I need to complete a formal written loan application? No Yes
Will a credit check be required? No Yes
Will I need to prove that I have the required down payment? No Yes