Knowing the difference between being prequalified and being preapproved will assist your home buying efforts. Which one is right for you depends on what stage you are at in the homebuying process.
To obtain a loan prequalification, you fill out a loan application to see how much you are qualified to borrow. The lender will look at your income, your stated debts, the amount you have saved and your estimated credit score. Nothing is verified. Your lender may give you a letter, indicating what you are prequalified to borrow. Prequalification helps you see what you can afford and if it is timely to go house hunting.
A mortgage preapproval is the result of the lender verifying all of your financial information so they can determine what loan amount you can afford and what kind of mortgage program would work best for you. When you are ready to buy, you add strength to a purchase offer when you include your preapproval letter. It gives the seller confidence that you can obtain financing and complete the purchase.