When you are starting the homebuying process, you’ll hear many real estate and mortgage industry terms that may sound the same. Two terms that often get confused for one another are “prequalified” and “preapproved”. What exactly is the difference between “prequalification” and “preapproval”? Both can be used to gauge your creditworthiness to be approved for a mortgage, but they are not the same thing. You should understand the difference.
Getting prequalified for a mortgage is a smart first step when you’re considering buying a home. A mortgage prequalification is when you provide basic financial information (such as your income and assets) to get a rough estimate of how much you may be approved for. You can get prequalified by speaking with a lender or even by going online. If you’re unsure of which lender to go with or how much of a loan you can expect to be approved for, prequalification is a good place to start.
Preapproval is a more formal version of prequalification. You’ll need to give your lender more in-depth information about you and your finances, such as proof of ID, W-2 forms, and pay stubs. The lender will also perform a credit check, so make sure you’re practicing good credit habits in the meantime. Once the lender determines how much you can be approved for, you will receive a letter stating so. Having a preapproval letter will be an asset when making an offer to a seller; it lets them know you’re able to obtain a mortgage and that you’re a serious buyer. Additionally, when you have a more concrete idea of how much you can afford, you can be a more informed buyer when searching for homes. A preapproval letter will only be good for 60-90 days, after which you’ll need to repeat the process to get an updated figure. Even though a preapproval isn’t a guarantee of loan approval, having it can expediate the process and will give you an advantage when you’re ready to present an offer.
Prequalification is a sensible jumping-off point when you start your homebuying journey, but it’s merely an informal way for you to see how much of a loan you might be eligible for. It holds no real weight when you’re on the market for a home. A preapproval, on the other hand, will give you firmer numbers to base your choices around and makes you a more attractive buyer to sellers.
If you have questions about getting prequalified or preapproved, contact one of our Licensed Mortgage Loan Originators. If you are ready to begin the process, click here to get started!