Although many lenders use these two terms interchangeably, prequalifying for a loan is distinctly different from getting preapproval for a loan. In both cases, you are not obligated to use the lender to obtain your mortgage, but in the case of the preapproval, it will help expedite the processing of your loan.

Obtaining a mortgage prequalification
Prequalifying for a mortgage is a step you can take yourself. Basically, it is about determining how much house you can afford, given your debts and sometimes the size of your down payment. There are a number of websites that have prequalification calculators that will consider these minimal items and derive a figure indicating what size mortgage you qualify for. If you started with our "successful steps to buying a home" section, then you have already determined how much house you can afford.

Unfortunately, these calculators do not consider your budget as a whole, which is why we recommend examining your finances to make sure that you can afford the mortgage that's being suggested. For example, consider two couples earning $50,000 a year each with $500 a month in debt payments. On the surface, and according to the calculator, they may appear to be equally qualified for a $130,000 mortgage. Yet consider that one couple has no children, and the second couple has two children, and you might correctly surmise that their budgets are totally different and this size mortgage might be too much for the second couple.

Once you have prequalified yourself, and evaluated your budget to ensure that you can afford the mortgage payment and all the other expenses that come with owning a house, you will be in a good position to start considering a house purchase, and you might even begin the search process. Understand, though, that telling a seller that you are prequalified is not the same as telling them you are preapproved.

Obtaining a mortgage preapproval
Preapproval is a written commitment from a lender, subject to a property appraisal and other stated conditions, that lets you know exactly how much home you can afford. It's not only easy to do, it's also a very smart move for serious homebuyers.

Before you begin shopping for a home, submit your financial information to a lender, preferably one that you are considering anyway. The lender will review your loan application and if you qualify, provide you with a written commitment for a certain mortgage amount, down payment, and interest rate — subject to the terms of the commitment letter.

What are the advantages of being preapproved?
If you have submitted your paperwork and actually been preapproved for a mortgage loan, there are certain advantages that will help you in the home buying process: