Prequalification and preapproval are two tools to estimate how much you might be able to borrow for a home. Each may make your homebuying process smoother and can help you and any sellers you negotiate with feel confident about the home price you can afford.
When buying your first home it helps to have a preliminary estimate as to how much money a lender is likely to loan you based on your financial profile.
Prequalification and preapproval are two tools to estimate how much you might be able to borrow to buy a home. With both, lenders take a preliminary look at your financial information to help you understand how much you might be able to borrow.
Both a prequalification and preapproval can help you search for homes for sale at prices where you are more likely to qualify for the home loan needed to complete the home purchase.
Securing either also helps demonstrates to sellers that you have or are likely to get the financing you need in order to meet their asking price, which can be especially helpful in a competitive market, when multiple potential buyers may be trying to purchase the same home.
There are important differences between prequalification and preapproval, however. Our video below discusses some of those differences, as well as how each may help you as you look to buy your first home.
[your Home Matters<sup>SM</sup> Minute logo and Wells Fargo logo on screen]
[Video title text: Prequalification versus preapproval]
Smart buyers do their homework. They estimate a price range for a house before they shop. You can do this with a mortgage prequalification or a preapproval.
[Two icons of a piece of paper; one on the left has the headline Prequalification and the one on the right has the headline Preapproval]
[Preapproval text and icon animate off the screen, leaving a single piece of paper icon and the header Prequalification; bulleted list says:
No fee or obligation
No credit check]
A free mortgage prequalification lets you know roughly how much you can borrow, based on basic financial data you provide.
There is no fee or obligation and no credit check involved.
[Icons of a piece of paper with the header Preapproval; bulleted list says:
Preliminary credit review
Specific loan amount
Credit check fee]
A preapproval involves a more detailed look at your data and is based on a preliminary review of your credit information. It tells a real estate agent and seller that you’ve been preapproved up to a specific loan amount. With a preapproval, there may be a fee for the cost of the credit check.
Because it is based on more detailed information and an actual credit check, a preapproval has greater benefits than a prequalification.
[Text header on screen says Preapproval; one icon below of a person with text below it that says Shop confidently; second icon to the right of a circle with a dollar sign inside it with text below it that says Know your price range]
With a preapproval, you’ll be able to shop confidently because you have an estimate of how much you may be able to borrow, and your real estate agent will know your approximate price range to search.
Getting preapproved or prequalified can help you estimate your price range.
However, it’s important to remember that neither one is a commitment to lend.