Have you been prequalified for a mortgage loan? Or preapproved? Are they the same?

While both are steps in reaching homeownership, they have different meanings.

What’s Prequalified?

Prequalification is an informal process. You describe your financial situation—debt, income, and assets—and the lender estimates how much you may borrow. The lender may even consider a credit check, a soft one that should not affect your credit score.

This process can occur over the phone, online, or in person. Becoming prequalified can prepare you for the next steps in buying a home and help you explore your mortgage options.

What’s Preapproved?

You will provide your lender with proof of your financial history. The lender will check your income, employment status, assets, debt, and pull a credit report on you. Documentation for this process can include W-2s, pay stubs, a summary of assets, and a copy of your mortgage statement if you already own real estate. Preapproval can be completed online with support from a loan officer if needed.

If you get preapproved, you will receive a letter outlining the amount and type of mortgage the lender is offering along with terms. Preapproval is vital to the homebuying process.

If you are considering buying a home, prequalification and preapproval will show you your borrowing options. That information will also help your REALTOR® understand what you can afford.