Preapproved vs. Prequalified

What does is mean to be preapproved?

Being preapproved means applying for a mortgage as if you have already found a house and are ready to buy.  The lender will review your credit report, debt, income, and either approve or reject the loan.  They will also provide you with a letter saying they will fund the loan, after receiving an appraisal, title report, and purchase contract.

So what's the difference between being preapproved and prequalified?

Prequalified means that you have spoken with a lender about possibly acquiring a loan, and they have run some figures to see approximately how much they might agree to loan.  No agreements are made--you walk away with no guarantee of a loan.

You should always be preapproved for a home loan.  Knowing what you can afford saves you and your agent a lot of time and frustration.  Also, sellers may accept your lower offer over another that didn't have preapproval letter.  This happens because you are showing them you have the money.  They have no way of knowing with the other buyers without seeing a preapproval letter.