Removing the Mystery from … Prequalification vs Preapproval               


What is the difference between prequalification and preapproval?


These terms are often used interchangeably but they usually mean quite different things which are important to know – especially when you are shopping for a new property.


A “prequalification” is usually a quick over-the-phone calculation performed by your lender that prequalifies you for a loan.  It is simply an opinion based on preliminary estimates.   A prequalification letter which we can provide to you is helpful in shopping for a new property, but a "preapproval" letter is better.


A “preapproval” is usually given after you have submitted a formal loan application with a credit analysis.  A prequalification is an opinion, a preapproval is a decision to extend credit.  The "preapproval" may have a number of "subject-to" conditions associated with it such as a satisfactory appraisal, asset verification, job verification etc.


At Apple Street Mortgage, we run most loan applications through a computer automated underwriting system and can get preapproval subject to conditions/verifications for our borrowers within minutes.  We will then have a human underwriter review the conditions (appraisal, bank statements etc.) along with your original loan application before issuing a more formal loan commitment.

Unfortunately, a loan commitment from a lender can still have conditions, the most common being a last-minute verification of employment.  It's simply a reality of the business (meant to enlighten - not frighten) that a lender may not follow through on their "commitment" if they determine a few days before closing that you've lost your job.  For this reason, it is best for a borrower to make the loan commitment date and the closing date the same! The seller may not be agreeable to this, but you should discuss this with your real estate agent and understand all of the ramifications of your decisions.

Many lenders require an entire laundry list of documentation, but our experience (with the help of the latest technology) enables us to do many of our loans with very limited documentation, saving you a lot of time and hassle.  Sometimes only a bank statement is required or even no documentation at all!


With all the different terminology and variables involved, the important thing to remember is that you should always work with a trustworthy professional with experience.   Putting your loan in the hands of someone who is not an expert in their field can cost lots of time, money, stress, and possibly your loan!