You may have heard both terms being used by lenders at some point in time. When it comes to mortgages, even if you have heard the words, you may not fully grasp what the difference is between preapproval and prequalification. One is more beneficial to you than the other, but which one, and what do they mean?

Prequalification is fairly basic. You can do it online, over the phone, or just by chatting with a lender. When you seek prequalification, you are giving your principal financial information to the lender. The lender then takes that small amount of information and calculates a rough estimate of the mortgage amount you may be able to borrow. This number is strictly an estimate, as the lender does not have a full view of your finances and therefore cannot make a better informed decision. This number can only give you a brief idea of what you may be able to afford; what you could be approved for.

Home sellers are much more interested in people who are preapproved as opposed to those who are only prequalified. Preapproval is more involved than prequalification. When you see a lender about preapproval, you will provide more information, such as banking information, employment, other assets, and so forth. The lender will look more closely at all this information, as well as look into your credit history to have a much clearer idea on what sort of mortgage you are eligible for. Once the lender has finished the check, he or she will be able to give you an amount that is extremely close to, if not exactly, what you will be able to borrow.

Preapproval is more appealing to a seller because they know your background has been looked into thoroughly and if you have been preapproved, then that means there should be no problems in case you decide to purchase the home or property. Preapproval means it is much less likely for there to be any unpleasant surprises when the deal is being made. Being preapproved also proves to the seller that you are more serious about making a purchase instead of just looking around. This can get you better attention from both the seller as well as the realtor when you decide to look at a house.

Getting either preapproved or prequalified is rather easy. All you need is a good lender and all your information ready to go. However, if your credit history is bad, your employment history sketchy, or you are currently in a bad spot concerning your finances, it can be harder to be preapproved. Prequalification is completely possible, but you will find that the number you receive from the lender is painfully low or even to the point of the lender explaining that you would not be approved at all. When seeking a mortgage, you should make sure your credit history is blemish free, and you are at a place in life where you can afford the mortgage you want. This means having a steady employment, income, and enough assets to give you some cushion in case one of those disappears.