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This is something that makes me crazy. I just got back from a real estate conference in Nashville, and frustrated buyers kept telling me the same thing over and over. They'd find their dream home, make an offer with a prequalification letter, and lose to someone who had preapproval. Every. One. Time.
The mortgage market in 2025 is very different from what it was before. As of October 2025, average 30-year fixed mortgage rates were around 6.15%. Sellers have choices because inventory is still low in most markets. They're taking the easiest route, which is paved with letters of preapproval.
But this is where it gets interesting. A lot of first-time buyers I talk to don't know what the real difference is between prequalification and preapproval. They think it's just words. No, it's not. These are two very different animals, and knowing which one you need could mean the difference between winning the bidding war and letting someone else get the keys.
You can think of prequalification as the first course before the main course. You're showing a lender a picture of your finances, and they're giving you a rough idea of how much you might be able to borrow. The word "might" is important.
It is easy to do. You give basic information about your income, assets, debts, and credit history. Most of the time, this happens over the phone or through an online form. The lender trusts what you say. They haven't checked anything yet. They are only doing rough estimates based on what you tell them.
This is the math that shows what they're doing. If you make $80,000 a year, The lender divides that by 12 to get your gross monthly income, which is about $6,667. If you pay $500 a month in car loans and credit cards, your debt-to-income ratio before the mortgage is about 7.5%.
Most traditional lenders want your total DTI to be less than 43%, and some want it to be less than 36%. With that $6,667 a month, the lender would figure that you could handle about $2,400 in total monthly debt payments, which would include your future mortgage. Take away the $500 you already owe, and you have about $1,900 left over to pay your mortgage.
At current rates of about 6.15%, that $1,900 monthly payment (before taxes and insurance) means you can borrow about $315,000. That's your estimate for prequalification.
It takes about 10 to 15 minutes to do the whole thing. No forms to fill out. In most cases, there is no credit check, or at least a soft pull that doesn't hurt your score. And here's the best part: It's not binding on either side.
Preapproval is a whole different thing. This is when the lender stops believing you and starts checking everything you said.
You'll need to show proof. A lot of it. Recent pay stubs, usually the last two months. Two years' worth of W-2 forms. If you work for yourself, you'll need your tax returns from the last two years and your profit and loss statements. Bank statements from the last two months that show your assets. If you're getting money as a gift for your down payment, the person giving it to you will need to write you a gift letter.
The lender will check your credit report. This is a hard inquiry that will lower your score by a few points. However, if you're looking for loans from several lenders within 45 days, those inquiries usually only count as one hit.
They'll check your job by calling your HR department or asking for a verification of employment form. They will accurately figure out your debt-to-income ratio, taking into account all of your revolving accounts, installment loans, and other debts.
In return, you get a conditional promise to lend you a certain amount of money. It's conditional because it depends on a few things: the property you choose must be worth at least the purchase price, you can't take on new debt or quit your job before closing, and your finances must stay pretty much the same.
Your preapproval letter is important. It lets sellers know that you're a serious buyer who has been checked out by a lender. In 2024, mortgage lenders approved 81% of all applications for all types of loans. However, they only approved 85.89% of applications for purchase mortgages. When a seller sees your preapproval, they know you're probably in the group that got approved.
I'll be honest about this. You need preapproval if you're really looking for a house and are ready to make an offer. That's it. That's all for now.
The only reason to prequalify is to help you figure out how much money you can spend before you start looking for real. You might be six months away from buying a home and want to know if you should be looking at homes that cost $300,000 or $400,000. That works for prequalification.
But what about when you're looking at homes with a real estate agent? When you can picture where your couch will go? You need to get preapproval.
This is more important than ever in 2025. In 2024, there were 5.54 million mortgage applications, down from 5.57 million in 2023. It sounds good that there are fewer buyers in the market, right? Not really. There is still a limited supply of homes. In early 2025, there was more migration and home sales in the Sun Belt states, such as Florida, Texas, and Arizona. On the other hand, the Northeast and West Coast markets slowed down because homes were too expensive.
What this means is that you're up against other qualified buyers who have done their research. If you show up with a prequalification letter, you're bringing a knife to a gunfight.
Let me show you a picture. Two people want to buy a house that is listed for $425,000 and make the same offer. Both offers are for the full asking price and come with 3% earnest money. Same time frame. Same conditions. The only thing that makes them different is that Buyer A has a prequalification letter. Buyer B has a letter saying they can buy the house.
Who gets the house? Buyer B. Every time.
Why? The agent for the seller does the math. With Buyer A's prequalification, the deal has a 60% to 70% chance of going through. The buyer still needs to get full underwriting, check their documents, check their credit, and get approval. It could be stopped by any number of things.
With Buyer B's approval, that chance goes up to 85% or more. The hard work is done. The lender has made a promise. This deal is going through unless there are big changes or problems with the appraisal.
Sellers know that the average mortgage approval rate is 81% overall but 85.89% for purchase loans specifically. Their agents definitely know these numbers.
First, make sure your financial papers are in order. Make a folder, either on paper or on your computer, with the following items: the last two months of pay stubs for all income earners, W-2 forms from the past two years, tax returns from the past two years if you are self-employed, two months of bank statements for all accounts, recent statements for all debts, proof of any other assets, and if you need help with a down payment, divorce decrees or gift letters.
When you have all of your paperwork in order, apply to at least two or three lenders. Most people don't know this: If you shop around for loans from more than one lender in 45 days, it only counts as one credit inquiry. Comparing offers won't hurt your credit.
Each lender will look over your application, check your documents, and send you a preapproval letter if you meet their requirements. You should look at more than just the loan amount. You should also look at the interest rates, fees, and terms that each lender is offering.
Most lenders want a credit score of at least 620 for regular loans, but many want a score of 640 or higher to get the best rates. Your debt-to-income ratio should be less than 36%, but some lenders will go up to 43%.
FHA loans are more flexible for people with credit scores as low as 580, or even 500 if they put down 10%. VA loans for veterans and service members who meet certain requirements often let them have higher DTI ratios.
People get preapproved and then go out and buy a new car right away. That's the biggest mistake I see. They might also put a vacation on their credit card. Or they change jobs.
Your preapproval is based on how much money you have at the time of approval. If you change that picture, you might lose the approval. Before closing, lenders usually double-check everything. It's a problem if your debts have gone up or your income has changed.
Here's another one: not updating your preapproval as the expiration date gets closer. Most preapprovals are good for 60 to 90 days. If you are still looking for a house after that, you need to renew with new paperwork.
And this one drives me crazy: People get preapproved for the most money they can get, and then they try to buy that amount. The bank says you can buy a house that costs $400,000. That doesn't mean you should buy a $400,000 house. That is the most the lender will let you borrow, but it may not be what you can comfortably afford.
Keep in mind that the lender's calculation doesn't include your 401(k) contributions, your kid's soccer league fees, your Netflix subscriptions, or any other spending that isn't necessary. Add a buffer. If you can get $400,000, you might want to look for homes that cost between $350,000 and $375,000.
Both prequalification and preapproval are easier with AmeriSave's digital mortgage platform. You can get prequalified online in just a few minutes, and when you're ready to look for a house, you can easily move on to full preapproval.
The platform lets you upload documents automatically, get updates on the status of your application in real time, and talk directly to licensed loan officers who can answer your questions. The digital-first approach cuts the usual preapproval time by a lot for buyers who value efficiency and openness.
AmeriSave's technology makes the process less painful than traditional lenders, whether you're looking at your options or ready to make offers.
Aside from your credit score, your debt-to-income ratio is the most important number for getting a mortgage. There are two ways that lenders figure it out: front-end and back-end.
To figure out your front-end DTI, just divide your housing costs by your gross monthly income. This covers your mortgage payment (both the principal and the interest), property taxes, homeowners insurance, and any fees from your homeowners association (HOA). Most lenders want this to be less than 28%.
Your back-end DTI includes your housing costs and all of your other monthly debts, such as credit cards, car loans, student loans, personal loans, child support, and alimony. This is the number that counts. Most traditional lenders want to see 36% or less, but they may go up to 43% for borrowers with good credit and a lot of assets.
Let's go through an example with actual numbers. Let's say you make $7,500 a month before taxes. You can have up to $2,700 in total monthly debt payments if your back-end DTI is 36%. You have $750 in debt right now if you pay $400 for a car loan, $200 for student loans, and $150 for the minimum on your credit cards. If you take that away from $2,700, you have $1,950 left over to pay your mortgage.
But this is where things get complicated. That $1,950 isn't just the interest and principal. It also includes homeowners insurance and property taxes. Some states have low property taxes. In some cases, they're very bad. Insurance is the same. Your homeowners insurance could be three or four times higher in Florida than it is in the Midwest.
So, let's say that insurance and property taxes cost $450 a month. You now owe $1,500 in principal and interest. If you have a 30-year mortgage with a 6.15% interest rate, that $1,500 monthly payment means you owe about $248,000.
This is why the amount you were preapproved for might be less than you thought. The lender isn't being rude. They're doing the math.
The mortgage market in 2025 looks different now than it did a year ago. After the Federal Reserve cut interest rates by 50 basis points in the first quarter of 2025, mortgage rates went up a little bit. By October 2025, rates were still around 6.15% for a 30-year fixed mortgage. This was down from the 7% levels seen in early 2025, but it was still well above the historic lows of 2020–2021.
Prices of homes kept going up, with a 4% increase from one year to the next, reaching new highs in early 2025. At the same time, affordability is still a big problem because there aren't enough affordable homes to meet demand.
What does this mean for your plan to get prequalified and preapproved? First, if you're shopping in a market with a lot of competition, you have to get preapproved. You have to do it. Sellers have options, and they are going with the sure thing. Second, the amount you were preapproved for might not be enough to buy a home. Your buying power has gone down a lot since a few years ago because of higher rates and prices. Third, you need to act fast after you get preapproved. You don't have forever to find the right property because approval letters are usually only good for 60 to 90 days.
When it comes to prequalification and preapproval, FHA, VA, and USDA loans are different from regular mortgages.
The Federal Housing Administration backs FHA loans, which let people with lower credit scores and down payments as low as 3.5% get them. The preapproval process is the same as for regular loans, but FHA loans are usually more forgiving of past financial problems, like bankruptcies or foreclosures, as long as enough time has passed.
VA loans are often the best mortgage deals for veterans, active-duty service members, and spouses who are still alive and eligible. No need to put down a deposit. No PMI (private mortgage insurance). More flexible rules about credit and income. If you qualify for a VA loan, you should get preapproved through a VA-approved lender before you even start looking for a house. A large part of the mortgage market in 2024 was made up of VA loans.
USDA loans for homes in rural and suburban areas don't require a down payment for qualified buyers in certain areas. There are income limits, but if you meet them, these loans are worth looking into. The time it takes to get preapproved for a government-backed loan is about the same as for a regular loan, but the paperwork needed is a little different.
No. Prequalification is an estimate based on information that people give themselves. The lender hasn't checked anything yet. You could be prequalified for $400,000, but then during preapproval, you find out that you only qualify for $325,000 because your actual income, debts, or credit don't match what you said they were. Prequalification is like the lender saying, "Based on what you're telling us, here's what we think you might qualify for." Preapproval is like them saying, "We've checked everything, and here's what we'll actually lend you."
Most of the time, prequalification takes 10 to 20 minutes. You can do it online or over the phone. All you have to do is give some basic information about your debts and income, and you'll get an instant estimate. Getting preapproval takes a lot longer because you have to gather and check documents. You should plan on spending a few hours gathering your documents, such as pay stubs, tax returns, and bank statements. After that, you will have to wait 3 to 10 business days for the lender to look over everything and send you your preapproval letter. Some online lenders can speed this up, but even the fastest preapprovals take at least a few days.
Yes, but only for a short time and not very much. To get preapproval, you have to have a hard credit check, which usually lowers your score by 5 to 10 points. The good news is that if you apply for more than one mortgage in a 45-day period, it will only count as one inquiry for credit scoring purposes. This means you can compare rates with more than one lender without hurting your score. The inquiry's effects get weaker over time and go away completely after two years. For most buyers with good credit, the short-term drop in their score is worth it for the competitive edge that preapproval gives them. On the other hand, prequalification usually only involves a soft credit check or none at all, which doesn't change your score.
Of course, and you should. One of the best things you can do for your money is to shop around for loans. Different lenders have different loan terms, rates, and fees. You can compare offers and possibly save thousands of dollars over the life of your loan by getting preapproved with two or three lenders. Make sure to send in all of your applications within 45 days so that they only count as one credit inquiry. When you compare offers, don't just look at the interest rate. Also look at the annual percentage rate, closing costs, and any fees the lender charges. Some lenders say they have low rates, but they charge more in fees to make up for it.
Most preapproval letters are good for 60 to 90 days. After that, lenders will want to double-check your financial information because things can change. If you are still looking for a house after your preapproval expires, you will need to send in new documents, such as recent pay stubs and bank statements, to get your preapproval renewed. This is usually easier than the first preapproval because a lot of the information stays the same. In markets where houses sell quickly, 60 to 90 days is usually enough time. In slower markets where you have more choices, you might need to renew your preapproval.
Preapproval means that you are agreeing to something based on your financial situation at the time you apply. After you find a property, your offer is accepted, and the lender does more checks like an appraisal of the property, a title search, and final underwriting, you will get final approval. The lender will check your credit again, make sure your job is still there, and make sure your financial situation hasn't changed between preapproval and final approval. They'll also check to make sure that the property you're buying is worth at least what you're paying for it. Preapproval means you're ready to shop, while final approval means you're ready to close.
Getting prequalified before meeting with agents shows that you are a serious buyer and helps you figure out how much you can spend. But really, most experienced agents would rather you come to them with preapproval than just prequalification. Skip right to preapproval if you're really ready to buy before you call agents. Prequalification is a good first step if you're just starting to look around and want to know what you can afford. Before the agent can really help you make offers, you need to get preapproved. A lot of agents won't even show homes to people who aren't at least prequalified because it's a waste of time for everyone if you can't afford the homes you're looking at.
Yes, but it makes things harder. If you get preapproved with Lender A and then decide to work with Lender B instead, Lender B will have to go through the whole preapproval process again. You'll have to fill out another application, and they'll check your credit again (this will be a hard inquiry, but it shouldn't hurt your score any more because it's within the 45-day shopping window). You'll also have to send in all of your paperwork again. That's why it makes more sense to shop around for lenders and compare their preapproval offers before you start shopping. But if you find much better terms with another lender even after you've been preapproved, it might be worth the trouble. Just think about how much time this will add.
No, and this is very important. Even though all lenders follow general underwriting rules, their specific needs are different. One lender might only let you borrow up to 36% of your income, while another might let you borrow up to 43%. One lender might need a credit score of 640 for a regular loan, while another might only need 620. Loans backed by the government, like FHA, VA, and USDA loans, all have the same basic requirements. However, individual lenders can add their own restrictions on top of those. This is one more reason to compare lenders. You may be able to borrow more money from one lender than another just because they have different requirements. Don't think that if one lender says no, all lenders will. Don't give up until you've tried at least two or three.
Get in touch with your lender right away. Your lender needs to know if you lose your job, take on new debt, or have any other major change in your finances. They'll check everything again before closing anyway, so hiding changes will only make things take longer and could cause your deal to fall through at the worst possible time. Depending on the situation, some changes might be okay. Some people might need to change the amount of their loan, or they might not be able to get one at all. You should definitely tell people if you get a raise or a promotion. If you get a loan for a car or put a lot of money on your credit card, that's bad news that could ruin your deal. Once you get preapproved, the most important thing to remember is not to change anything about your finances until after you've bought your house.
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