Prequalification vs. Preapproval

Knowing how much you can afford before you start looking for a home can save you time and frustration. Getting a clear picture of your budget will ensure that you don't fall in love with a house you can't afford.
There are two ways to determine how much you can afford: prequalification and preapproval.

A prequalification involves the mortgage lender asking a few questions about your income, financial assets, and any debt you may carry. The lender will also pull your credit report. You may receive a prequalification letter from the lender telling you approximately how much you may be able to borrow.

A preapproval also involves the lender reviewing your financial records and credit history, but it goes a few steps further than a prequalification. When you get preapproved, you'll also complete a mortgage application and the lender will underwrite (or fact check) the information you provide. Once you're preapproved, you'll receive a preapproval letter stating the amount.