Prequalifications

• A prequalification is an analysis of how much money you might be able to borrow for a house. It's a ballpark figure and isn't binding on the part of either borrower or lender. A mortgage loan officer looks at your income, the amount of debt you carry and your potential down payment amount. Using that data, you can get an idea of how much you might qualify for.
  
  

Preapproval

• Unlike prequalification, preapproval is more in-depth and complicated. You'll furnish the lender with all your financial information, including income and debt, and after examining your fiscal picture, the lender will provide you with an amount he is willing to lend you. In some cases, the lender can give you a letter stating the preapproval amount. Since the preapproval process examines finances more closely, there might be a difference between your prequalification figure and your preapproval amount.
  
  

Advantages

• The advantages to a mortgage prequalification come from allowing potential buyers to get an idea of the price range they should explore. For preapproval, the advantage comes for both the potential borrower and the seller. The borrower knows how much he's going to actually be able to borrow, and the seller of the home knows the buyer is serious enough to have begun the financial verification process.
  
  

Preparation

• When you're looking for preapproval, preparation is key. Make sure your financial affairs are in order. You'll be asked for W-2 forms (or 1099 statements) for the past two or three years. You'll also have to produce your tax returns, as well as bank statements for the past four to six months. In addition, you'll need to furnish any recent pay stubs you've got or proof of any other forms of income.
  
  

Time

• If you've got a preapproval agreement, there is usually a timetable attached. Ninety days is the usual length of time. After that time, the offer is no longer valid. This is done to make sure your financial situation hasn't changed. When the expiration deadline approaches, you can contact your lender in order to get an extension.