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Prequalification and Preapproval

If you already own a home and are looking to refinance, you can skip this chapter. If you plan to buy a home, the first step is to determine how much house you can afford, and then to start shopping for a mortgage. Your goal is to get prequalified or, better yet, preapproved. Once you have done that, you can start shopping in earnest for a home.

By getting prequalified or preapproved for a mortgage, you will have negotiating leverage because the seller knows that you already have a loan virtually in your pocket. And you’ll know how much you can borrow so you won't be tempted to look at unaffordable houses.


Prequalification acts as a dry run of the loan application process. The mortgage lender will use details you provide about your credit, income, assets, and debts to arrive at an estimate of how much money you can afford to borrow. The whole process may take only minutes or a few hours at most, and is usually free.

While a "pre-qual" is nonbinding to the lender (because they haven’t verified the information you provided), it does serve as a good indication to potential sellers of your general creditworthiness.


Preapproval takes prequalification one step further. The lender will contact your employer, your bank, and others to verify your income, assets, debts, and credit history, and then issue you a letter stating that your mortgage is approved for a certain amount within a certain time. You may be charged a small fee to cover the cost of your credit reports and your application, but this fee is often refunded at closing.

Gain the Buying Edge

The advantages of prequalification and preapproval are twofold. First, you're more attractive to sellers, who needn't worry that they'll accept your offer only to have your loan turned down. Second, you'll save time to close the sale when you find a home because the lender will have already completed the necessary qualifying and underwriting steps.

Important note: Should your financial circumstances change before closing, make sure to contact your lender, as your prequalification or preapproval may no longer be valid.