Preapproval vs. Prequalification

Preapproval vs. Prequalification

  • Chelsea Dimin
  • 10/14/22


Prequalification is when a lender gives you an informal estimate of how much you can borrow, based on your gross income and debts. You won’t necessarily be approved for that amount, but the quick estimate is helpful when you’re shopping around for a mortgage. Requesting a prequalification letter from your lender can result from a quick conversation over the phone and does not require them to pull your credit report. It’s common for listing agents to require Buyers that are financing to submit a prequalification letter prior to scheduling a showing. This requirement helps weave out Buyers that are “just looking,” and limits showings to prequalified buyers that are already positioned to submit an offer.

How Do You Prequalify?

Lenders use two qualifying ratios to determine how much you can afford. The housing ratio and the debt-to-income ratio. Both ratios help determine how much of your gross income can comfortably go toward mortgage payments. Lenders use both ratios to calculate dollar amounts. The lower of the two amounts is considered your maximum monthly mortgage payment. Once lenders know this, they can estimate the maximum loan amount you can borrow.

Housing Ratio

The housing ratio is the maximum percentage of your gross income that you can spend on your mortgage payment. Typically, lenders allow a maximum housing ratio of 31%. Remember that your full mortgage payment consists of principal, interest, taxes, and insurance. Here is a formula to help calculate your monthly payment. This is only a basic estimate of what your payment might be and doesn’t factor in your debts.

Debt-to-income Ratio

The debt-to-income ratio is the percentage of your gross income that you can spend on housing plus debt payments. This ratio varies by loan product, but it’s often in the 41%-43% range. High levels of debt cut into how much you can afford to pay toward your mortgage, which in turn could lower your overall loan amount.


Preapproval comes later when you start seriously looking at homes and have found a specific property that you’re interested in submitting an offer for. A lender agrees to loan you a specific sum based on your actual loan application, as long as you meet certain conditions. Lenders can provide a preapproval letter after reviewing your financials such as tax returns, pay stubs, profit and loss statements, credit report, and debt. A preapproval letter from a lender gives you more negotiating power with sellers because it shows you have the funds to back up your offer.
I encourage my clients to submit a preapproval letter upfront with all financing offers to help them stand out from competing offers. For more information about how to submit a competitive, financing offer contact me.
Chelsea Dimin

Chelsea Dimin

Realtor® Broker

About The Author

Chelsea Dimin stands at the pinnacle of Maui's luxury real estate, consistently ranking among the top 1% of agents in sales volume. Chelsea specializes in oceanfront property and vacation homes and has over 17 years of expertise in real estate, business development, and advertising sales.

Originally from Milwaukee, Wisconsin, Chelsea holds degrees in Journalism and Spanish from the University of Wisconsin Madison. Her career journey led her to Los Angeles in 2006, honing negotiation skills representing top brands in digital media and advertising sales. In 2010, she joined New York Magazine's digital publication,, as the West Coast Advertising Sales Account Executive. In 2014, Chelsea embraced Maui's allure, obtaining her real estate license and collaborating with a local developer. As a Realtor Salesperson, she played a key role in transforming vacation rental estates into profitable ventures, attracting a global clientele.

Acquiring her Broker license in 2017, Chelsea made history in January 2023, becoming the first female Realtor to list and sell a $32 million dollar home in Makena, as reported by the Wall Street Journal. Today, Chelsea guides buyers in realizing their Maui dream homes. Known for tenacity and creativity, she forges connections, assesses needs, and delivers strategic results. Chelsea's signature is creating opportunities, leveraging a global network for off-market deals and win-win negotiations.

Clients appreciate Chelsea's commitment to staying informed, providing updates on values, market trends, and recommendations. Beyond real estate, Chelsea enjoys an active lifestyle, engaging in surfing, yoga, barre classes, mountain biking, beach runs, jungle hikes, and waterfall adventures with her husband Tim and beloved pitbull, Lulu.

“My mission is to exceed your expectations so that you never hesitate to refer your friends, family or coworkers to me in the future.”

Work With Chelsea

Are you interested in buying or selling a home on Maui? Contact me to tap into my local knowledge and global connections. My mission is to exceed your expectations so that you never hesitate to refer your friends, family or coworkers to me in the future.

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