What is the difference? Regulation B (Equal Credit Opportunity Act) and Regulation C (Home Mortgage Disclosure Act) dictate in most cases what is appropriate: “prequalification or preapproval”. In simple terms preapproval suggests that there may be a property involved and the loan has been through the underwriting process where it technically may be considered an “application” for compliance purposes. In most cases when you are looking for an initial indication of what you qualify for this hasn’t happened.
When you call a lender and determine that you would like them to see where you stand in terms of obtaining a new mortgage that will likely trigger the qualification process, which might include authorizing them to review your credit report, supplying them with information about your employment history, income, where you live, where you will be living (city/state) etc., this is correctly referred to as a “prequalification”.
Most real estate agents are familiar with this term, however some realtors and sellers are still looking for the word “preapproval” and that without that word perhaps due diligence has not been done by the lender. I would say that generally speaking this just isn’t true; as your lender wants to make sure you are ready to move forward as much as you do.
Many lenders will recommend that you provide them with your financials so that they can verify the information that you have provided. Once you have found a property the loan will still be subject to “final underwriting approval” but any lender worth their salt will have you headed down the right path.
The importance of a prequalification should never be underestimated. Don’t let the word get in the way of making an offer.