Prequalified vs. Preapproved: What's the Difference?
Getting prequalified or preapproved can help you gain an edge when putting in bids for your new home purchase. With either, you become more attractive to sellers and prove that not only are you serious about buying their home, but you can also afford it. But what really is the difference between the two?
A prequalification acts like a dry run of the actual loan process. Your lender uses all the same information they'll use when creating your loan (credit card, debts, assets, etc.) to arrive at an estimated amount of how much mortgage you can afford.
A prequalification is usually free and doesn't tie you to the lender since your information has not been verified at this point.
A preapproval takes the prequalification one step further by actually verifying your information. Once complete, you'll be issued a letter that states your future mortgage for a certain amount is approve within a certain amount of time.
With a preapproval, you may be charged a small fee, however this will most likely be refunded at closing.