Prequal or Pre-Approval: What’s the Difference?

February 20, 2024


Orion reminds our brokers that your clients’ satisfaction is our primary concern. Orion and experienced brokers realize that buying a home or refinancing it can be intimidating. Saving up the money for a down payment takes time, and then your buyers have to deal with a hot housing market in many areas, having an offer accepted, and going through the closing and signing documents.


Before your client can start shopping for their home, they need to know how much they can afford. Even if they’re in the early stages of looking, it’s important to have some idea of their budget since they might run into their dream home and need to act fast. If there are multiple offers and they get into a bidding situation, you’ll certainly want to be able to tell them how high in price they can go.


If your client has spent some time looking at mortgages, they’ve likely come across offers to get “prequalified” or “preapproved.” They sound the same and are often used interchangeably, but while either option will provide them with an estimate for their home buying budget, there are some important differences that we feel that brokers can add value by explaining to your clients.


Let’s address prequalification. Brokers know that being prequalified is generally easier and faster than getting preapproved. To pre-qualify your client, Orionor the broker will typically ask them for some financial information like income and what other assets they have. We may also run a credit check. At this stage, the credit check is normally a soft inquiry that won’t impact your client’s credit score. The whole process can almost always be done online or over the phone, and your client can expect to hear back pretty quickly, usually within aday or two. Orion or a good broker may even prequalify them in as little as an hour.


If Orion does pre-qualify your client, they should then receive a prequalification letter that they can show to a real estate agent or seller as proof that they’re working with a lender. It’s important to understand that prequalification is not a guarantee that your client will get a loan. If your client has just started looking or has no idea of what sort of home price they can afford, prequalification is an easy first step. But if your client is getting serious about buying, they probably want to get preapproved instead.


Preapproval…being preapproved is a much more formal and involved process. Orion and you will work together and ask them to submit documentation to prove income and financial assets such as cash they intend to use for a down payment. That means things like pay stubs, tax returns and bank statements. A broker will also run a hard inquiry on credit, which can potentially lower the credit score a few points temporarily. It will also take a lot longer than a prequalification, a few days at minimum, but a week or longer is not unusual.


A preapproval will also come with a letter, but this time there will be a lotmore details, like your client’s specific loan amount and interest rate, which will allow them to get a firm estimate of their homebuying budget. It also signals to sellers that your client is more committed to buying, which can be helpful when they do decide to make an offer!





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