Prequalification and Final Approval: What's the Difference in Mortgage Terms?

Leah BuryNovember 24, 2021


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Trying to buy a home? If you’re feeling overwhelmed, you’re not alone! There’s a lot that has to happen before moving day, and it can get complicated. If you’re just about to get started, or even if you’ve already started house-hunting, we have one big recommendation to make: prequalification. But what about preapproval? Are they different somehow? We’ve broken down the basics of the two homebuying terms to make your future home purchase as successful as possible.

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Why Prequalification is Important

Before we dive into the various levels of approval for a mortgage, let’s talk about why getting prequalified (or beyond) is important.

First of all, without getting prequalified, you won’t have a good idea of what your budget should be. You may have an idea in mind of the price range you want to go for, but if you aren’t able to actually secure a loan in that price, you don’t want to waste your time looking for houses in that price range. Getting prequalified should be the very first step so that you can enter the search confident that the homes you are looking at are within your buying power.

On the flip side, if you attempt to get prequalified and find you are not eligible for the loan amount that you are hoping for, you’ll have an opportunity to pause your search, improve your financial situation, and try again down the line.

And finally, having any level of mortgage prequalification gives you a competitive edge as a buyer. Things move fast in today’s housing market, and the time it could take for you to go through the mortgage approval process once you’ve already found your dream home could cause you to miss out on it if someone else is faster. Show buyers that you’re serious and get prequalified.

The Stages of Mortgage Approval

There are several levels of prequalification and approval that come before officially securing a mortgage loan. Each level brings you closer and closer to getting that loan and locking in the house of your dreams. Here are the stages.


A loan prequalification is the first step of the mortgage process, where you provide information on your finances and in return, receive an estimate of the amount you may be able to borrow. A prequalification is a great way to get an idea of what your actual budget is before you start house hunting. Having a prequalification letter is also a signal to real estate agents that you are truly ready to buy a home.

In order to get a prequalification, a lender will look at your credit history and ask questions about your financial situation. If any issues arise that might hinder you from qualifying for a mortgage in the amount that you are hoping for, you will be able to discuss this with a loan officer during the prequalification process.

A prequalification provides you with an estimate of the maximum amount you can expect to borrow—but it’s just an estimate. It doesn’t represent any actual commitment on the part of the lender. Also, keep in mind that the estimate that you receive is dependent on the information that you report yourself. There is no benefit to misrepresenting your financial situation during this stage, as you will undergo more thorough vetting during the subsequent phases. Be as honest as accurate as possible so you can get the most realistic estimate.


mortgage preapproval is a more intense process than prequalification because it represents a commitment from the lender indicating the type of loan and the amount that you qualify for. During the preapproval process, the lender pulls your credit report, asks for proof of income an other documents, and generally digs deeper into your finances. You may be asked to provide things like pay stubs, a detailed credit report, tax returns, your social security number, and more.

Conditional Approval

Believe it or not, there is still a step between getting preapproved or prequalified for a loan and actually getting that loan. A conditional approval means that there are a few pending conditions that you must meet in order to be officially approved for a mortgage.

This type of approval typically occurs when the loan underwriter is reviewing all of your application materials and is mostly satisfied but wants some more information. Some information they may request includes:

  • Income statements
  • Bank statements
  • Credit card statements
  • Asset statements
  • An explanation for a recent large withdrawal

Having a conditional approval puts you in the best possible position you can be in when looking for a home, as it shows that a loan underwriter has already thoroughly vetted your information.

Verified Loan Approval

A verified loan approval is the final step in the process. You receive a verified approval when all of your information has been reviewed and you have been deemed worthy of a mortgage loan. After this final approval, the next step is to attend the loan closing/signing.

Set Yourself Up for Success

If you’re serious about buying a home, the best thing that you can do is get prequalified. Not doing so can greatly slow down your search and cause you to potentially miss out on your perfect home. Most lenders have an online process you can follow to get prequalified, but if you have any questions about the process, reaching out to a local lender is a great way to get the answers you need.

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Leah Bury

Leah is a financial writer based in Austin, Texas. Her articles include advice on investing in real estate, starting small businesses, and optimizing savings. Leah also does some freelance graphic social media work for local creatives.