No. Mortgage preapproval and prequalification are similar in that they both involve eligibility, but they are independent of one another. Prequalification is the first step and involves several basic questions related to mortgage eligibility. Preapproval happens after, and it is a more detailed process that is based on a full loan application.
Mortgage Prequalification Explained
Mortgage prequalification is the process by which lenders determine whether or not a potential borrower fits the basic financial requirements for a home loan.
During a mortgage prequalification, the lender will collect only basic financial information from the potential borrower. The lender will ask the borrower information concerning their credit, debt, income, and assets. Oftentimes, lenders will rely on self-reported financial data that the borrower presents to them when they issue the prequalification. This information is self-reported and typically will not be verified by the lender until later in the process. Therefore, the lender can only provide the borrower with an estimate of how much they qualified for and how much they will potentially be able to borrow.
Because lenders usually rely on self-reported financial information during the prequalification process, it is unlikely that prequalification will affect the borrower’s credit score. When lenders pull a credit report, it is labeled as a “hard inquiry.” Hard inquiries can lower an individual’s credit score. However, since the lender is unlikely to pull the borrower’s credit report during prequalification, their credit score is likely to remain unaffected.
Prequalification is informal and a non-binding evaluation. Therefore, a prequalification can happen in a relatively short period of time – usually 1-2 days – either in person, over the phone, or online depending on the lender.
Mortgage Preapproval Explained
Mortgage preapproval is a process that is based on a full mortgage loan application. This process involves the borrower completing a mortgage application and providing the lender with the information necessary to do a hard credit check. Lenders check credit scores, because it helps them assess whether or not a potential borrower is likely to pay back the loan and make the monthly repayments.
The preapproval process is essentially a verification process to confirm the initial loan estimate made during prequalification. The application process will also prompt potential borrowers to provide information on their income, assets, debt, accounts, employment history, former addresses, etc. This information is also used to assess creditworthiness and to calculate debt-to-income ratio and loan-to-value ratio.
Prequalification and preapproval are not the same. They are two separate steps in the mortgage loan application process with prequalification providing a loan estimate and preapproval acting as the verification process.