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Mortgage Prequalification vs. Preapproval

Key takeaway

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 demonstrate 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.

Prequalification versus preapproval

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.

Transcript: Prequalification versus preapproval

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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.

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.

A pre-approval 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.

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.

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. 
© 2014 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801. Equal Housing Lender.

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