To avoid any bumps in the road, let’s discuss the difference between the two.
The terms “prequalification” and “preapproval” are often confused, and even misused interchangeably, when really in dealing with mortgages, the two are like comparing apples to oranges.
Both prequalification and preapproval are steps taken prior to applying for a home loan, but the major difference lies in the level of commitment between the lender and the home buyer.
What does it mean to get pre-qualified?
Getting prequalified is usually the first step in the home-buying process, before applying for a mortgage.
The purpose of a prequalification is to give you an idea of the size or amount of the mortgage that you can apply for and what type of real estate you’ll be able to afford. But it is just that, a ballpark estimate. In other words, the lender will take your word for it and give you their best guess as far as the mortgage you would be eligible for were you to actually apply.
For this reason, the prequalification process is pretty quick and fairly painless, but may not mean a great deal to sellers or their agents, as it is just an approximate calculation.
When getting pre-qualified, you will provide your lender with:
Estimates of your personal finances including debt, income and assets, and an informal idea of your credit score.
What does it mean to get pre-approval?
On the other hand, when you’re ready to begin the process of applying for a mortgage, that’s when getting pre-approved comes into play.
Getting “pre-approved” is a more extensive process, involving the completion of an official mortgage application as well as submitting supporting documentation to backup your financial claims. The lender will then take steps to analyze and verify all of the information that you’ve provided.
When getting pre-approved, you will provide your lender with:
Verified records of personal finances including tax returns, pay stubs, a list of assets and bank statementsAn official credit score and credit report.
If all goes well, your lender will handover a pre-approval letter stating that you have met the criteria and are in good standing to secure your mortgage. This letter is usually valid for around 60–90 days and is a conditional commitment, meaning that if something changes during that time, such as your employment status or credit score, the lender is not required to provide the loan.
Even though pre-approval is not a 100% guarantee, it’s a good idea to get pre-approved when shopping for real estate. Taking this extra step gives you leverage in negotiations, proving to sellers and their agents that you’re good for your offer. It’s a more official way of saying- “I’m a qualified buyer who’s both serious about and can actually afford this purchase.”
Interested in taking the first steps and getting the mortgage process rolling? Contact me to get in touch with a trusted lender!