PreQualification vs. PreApproval

PreQualification vs. PreApproval

What’s the difference in a prequalifcation and a preapproval?

A common question from many borrowers, is “what is the difference between a prequalification and a preapproval. This has always confused borrowers because these terms are used differently by different people.

However, it is commonly accepted that these terms can be defined as:

  • Prequalification – A borrower’s scenario is reviewed by a loan officer.  The loan officer will review work history, income, credit score, assets for reserves and to close. If the buyer is also selling their an existing residence, we’ll discuss whether or not it will be necessary for that transaction to close prior to our transaction. Additionally, your scenario will be submitted to “automated underwriting.” Known as DU and LP, automated underwriting makes a quick check against existing Fannie Mae and Freddie Mac guidelines. If the scenario is withing guidelines for approval, I’ll issue a “prequalification letter.”  This letter serves two purposes. (1) It assures the buyer’s agent that the client will be able to succesfully close on a home in the price point that they’re considering.  (2) It assures the sellers of the same – that they’re not taking they’re property off the market for 30 or more days for someone that won’t be able to close.
  • Preapproval – Generally a preapproval includes everything discussed with a prequalification, but with an additional step.  With a preapproval, in addition to the loan officer’s review, we submit your loan for an underwriter to review as well.  This simply offers an extra level of security for everyone involved.  It provides the buyer with more confidence, but more importantly it makes their offer more attractive. Additionally, since the initial underwriting step has already been completed, there’s less work left when you find a property, allowing for a quicker close.

Regardless of the terminology used, the primary difference is that one is one version is reviewed by the underwriter only (and submitted to automated underwriting), while the second is also reviewed by a real underwriter.  90% or more of buyers only ever utilize a prequalification.  However, my normal process is to issue a prequalification, and then immediately begin working on a preapproval, in order to help the buyer and their agent have a more attractive offer.  I discuss that more at