Buying a home is a huge decision. It’s also one of the most exciting decisions you’ll make. Most people only purchase one or two homes in their lifetime. Some live in the same home all their lives. So, it makes sense that much about the homebuying process isn’t second nature.

Many aspects of buying a home are downright mysterious — especially when you see terms such as “mortgage prequalification” or “home loan conditional approval” bandied about. What do these terms mean, and how do they affect the homebuying process for the average first-time homebuyer and experienced homebuyer alike?

What does it mean to prequalify for a mortgage?

When you prequalify for a mortgage, it means the lender has provided an estimate of what you could be approved for based on details you submit and information found on your credit report. However, the lender has not verified your income, employment or asset information at this stage. That comes later as part of the conditional approval process, so your offer could change if the information you provide for prequalification is not accurate.

If you’re interested in simply determining a budget for your home search to see what kind of homes are available in your price range, prequalification can be an excellent choice. However, if you’re serious about buying a home in a competitive seller’s market, such as Washington state, you’re likely to miss out on a few golden opportunities if you’re prequalified but don’t have a conditional approval in hand when you make an offer.

It’s best to talk to your realtor about whether a prequalification or a conditional approval is best for your situation. They may recommend skipping prequalification altogether and suggest obtaining a conditional approval letter before beginning your home search. The reason is simple: A conditional approval letter indicates you’re further along in the home loan process than a prequalification letter.

If it comes down to you and another buyer making the exact same offer at approximately the same time, the home seller is more likely to accept the offer that has a conditional approval over a mortgage prequalification.

What is mortgage conditional approval?

A mortgage conditional approval indicates your lender has verified certain financial information about you, such as:

• Proof of financial stability
• Financial history
• Proof of income
• Proof of employment
• Credit report
• Assets and debts
• Debt-to-income ratio

Once a lender has received the information above, it will determine if it’s willing to lend to you and how much it's willing to lend so that you can buy a home. The lender will also provide you with a letter stating the same, which you can show to potential sellers or sellers’ agents when making an offer on a home.

One of the most important things to remember as a potential homebuyer is that conditional approval is not the same thing as a guarantee of approval. It’s a preliminary approval for lending you the money to buy a home — one that may be mitigated by other factors, such as:

• The appraisal value of the home
• Findings of the home inspection
• Down payment amount
• Outstanding conditions related to your financial status or creditworthiness

Conditional approval is, however, a more compelling document than prequalification to present to potential sellers to let them know you’re a serious buyer. That alone can give you leverage in competitive markets such as Washington state.

How are the two different?

Prequalification and conditional approval do appear quite similar at first glance. The primary difference between them is the amount of vetting done in the qualification process. A conditional approval is far more inclusive in the gathering of financial information and data about potential buyers. Other differences between the two include:

Of course, there’s no hard and fast rule that says you can’t have a prequalification and a conditional approval for your mortgage. In fact, both do serve different purposes and can help you make different decisions throughout the homebuying process.

Does prequalification or conditional approval affect your credit score?

Both prequalifications and conditional approvals can show up as inquiries on your credit report. This may temporarily lower your credit score. If you’re shopping for home loan rates from multiple lenders, TransUnion recommends limiting your mortgage loan inquiries to a 14-day window to minimize the impact.

Applying for multiple types of loans all at one time may also have a negative impact on your credit score. Try to avoid all other credit and loan applications during the time frame in which you’re preparing to purchase a home.

How long does the conditional approval/prequalification process take?

Mortgage prequalification doesn’t require much deep financial information about borrowers, and results may be available within minutes in some cases and within a few hours in others. Mortgage conditional approval, however, requires more financial information and greater detail. The average conditional approval takes between one and three days to go through.

It should be noted that the prequalification process relies on your honest answers to provide accurate ideas about how much home you can afford based on your income and debts. The credit and financial information you provide is not verified like it is for the conditional approval process.

Prequalification vs. conditional approval: Which best meets your needs?

If you’re looking to purchase a home in Washington state, where competition among buyers is fierce, a prequalification letter only offers the benefit of a ballpark idea of how much home you can afford to purchase.

If you want a more concrete idea of what you can expect to afford, a conditional approval is the only way to go. Plus, if you want Washington sellers to take your offers seriously, you’re going to need the additional indications of sincere intent to buy that a conditional approval provides.

The bottom line is that having a conditional approval for your mortgage loan ahead of making any offers lets sellers know you’re earnestly in the market for a home. As a result, sellers are more likely to entertain your offer over others who have only prequalification letters and certainly over those who have no evidence of intent at all. The only buyers who may have a slight advantage over a conditional approval letter are those who are buying with cash in hand.

Do you need a mortgage conditional approval to buy a home in Washington state?

Although it’s not a legal requirement to have a mortgage conditional approval or a letter of prequalification to buy a home in Washington state, having either document will certainly not hurt your chances. In fact, many home sellers simply will not entertain non-cash offers without one or the other.

With so many buyers competing for the available homes on the market, you need every possible competitive advantage. This includes things such as conditional approval letters and solid offers that reflect the value of the home in the current, highly aggressive housing marketplace.

How to get conditional approval for a home loan

If you have a preferred mortgage lender or financial institution, you may try for conditional approval through it. The internet also offers numerous opportunities for prospective homebuyers to apply for loan conditional approval and prequalification online.

Before applying for either, pay attention to information about estimated response times and how the lender will use the information you provide. You want to be sure you’re working with a legitimate financial institution that treats your privacy with the respect it deserves — especially since you’re providing pertinent personal and financial information.

For the most part, you provide the necessary information via online forms for whichever mortgage lender you’re considering and wait for the results to come to you. During that time, you might want to start sifting through housing listings in your area to get an idea of prices, as well as the types of homes available that appeal to your tastes and budget.

Does a mortgage conditional approval guarantee you'll get the loan for the home you want?

Whether you obtain a loan prequalification letter or a conditional approval, it does not indicate a guarantee that you’ll get the loan you desire for the home of your dreams. Many mitigating factors affect whether loans go through for certain homes. Some may be no fault of your own. Others could result from mistakes or false information on your credit report.

It’s a good idea to start working to remove any inaccuracies from your credit report a solid six months or more before you begin the home shopping process. That way, you won't get your heart set on a home that will ultimately fall through based on false information.

How long does your conditional approval last?

You should wait to start the conditional approval process until you feel you’re ready to find a new home for you and your family. Generally speaking, you’ll have 90 days from the date the conditional approval goes through to find and make an offer on a home while locking in the promised interest rate.

In fact, you may have to go through the entire conditional approval process again if you wait too long. In a hot market, which aptly describes most of Washington state, you need to be prepared to move quickly and make offers on homes that meet your criteria before someone else does.

The beauty of the conditional approval process is that it allows you to shop for your dream home with greater confidence and far less uncertainty than many others who hit the housing market without the document in hand.

First-time homebuyer tips

Buying your first home can be exhilarating and terrifying at the same time. It's likely to be the largest debt (with the possible exception of educational debt) you take on. Because purchasing a home isn’t something you do every day, here are a few tips you might want to keep in mind to make your homebuying process go more smoothly:

1. Get your credit score in tip-top shape. Begin months, if not a full year, before you plan to purchase a home. Make sure there are no missed payments, inaccurate information or other negatives that could derail your efforts. The higher your credit score, the lower, in general, your interest rate.
2. Buy with growth in mind. Most homes are 30-year investments. When purchasing, do so with consideration of the many changes that can take place in 30 years.
3. Get an inspection of the home. In fact, you want to make your offer contingent upon what you discover in the inspection.
4. Get a conditional approval for your home mortgage before you shop around. Not only does this give you an idea of how much money you have to work with, but it also encourages sellers to take your offers seriously.
5. Know what you must have, want and can live without. We all have that picture-perfect dream home in mind. The reality of finding it is rare. Look for a home that has the potential for perfection.

Key takeaways

When looking to buy a home in Washington state, seeking conditional approval will give you a leg up over prequalification to help you purchase the home you want. However, there’s no rule that says you can’t or shouldn’t seek both.