What is the difference between prequalification and preapproval?
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Short answer
and letters both say a lender is generally willing to lend up to a stated amount based on certain assumptions. Neither is a guaranteed loan offer. Lenders use the two words differently, so the process behind the letter matters more than the label.
Full explanation
Both letters describe how much a lender is willing to lend, up to a stated amount and based on assumptions. They give useful information about the likelihood of getting a loan, but they are not guaranteed offers.
Lenders use the words differently. Some issue a prequalification from unverified information you report and reserve 'preapproval' for verified information. Some issue a time-limited written commitment to lend up to a stated amount if stated conditions are met. The CFPB says not to rely on the label. Processes vary widely, and the word used may not tell you much about a particular lender's process, even if the legal effect can differ.
The letter can help you make an offer because it can give a seller more confidence that you can obtain financing. It is still not a guarantee. Lenders may check credit when issuing either letter. The process behind the letter matters more than the name on it.
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What’s the difference between a prequalification letter and a preapproval letter?
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