- Why Choose 1st United
- What Is A VA Home Loan?
- What You Should Know About VA Loans
- VA Loans vs. Conventional Loans
- 7 Important VA Loan Facts
- What’s Involved in the Mortgage Process?
- How Much House Can You Afford
- The Difference In Pre-Qualifications and Pre-Approvals
- How To Get A VA Loan With Bad Credit
- 10 Steps to Buying a Home
- Hiring A Real Estate Agent
- Planning Your Home Purchase
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The Difference In Pre-Qualifications and Pre-Approvals
Buying home is a complicated process and can be intimidating when you aren’t familiar with the financial terminology. When shopping for a mortgage you will run into two terms that sound similar but are vastly different: “prequalification” and “preapproval.” Both help demonstrate your likelihood of qualifying for a mortgage, but there is a world of difference between the two terms.
Prequalification in the mortgage process is an initial step and usually quite simple. Information you provide verbally to the about your finances — such as income, assets and debts — are used in a preliminary assessment about the size of mortgage for which you qualify.
This is a preliminary step, often done over the phone, and based solely on the information provided by you. At this time, the lender is not verifying the accuracy of information and may not even check your credit, relying instead on you to give a credit score range.
This prequalification can be helpful as it provides a strong indication of the amount for which you might expect to be approved. This is helpful to homebuyers who can limit home searches based on that amount and it gives your offer credibility with sellers and agents.
However, it’s important to keep in mind that prequalification is an approximation, not a promise of approval. All facts provided by the homebuyer must be thoroughly investigated by the lender through an in-depth analysis.
Preapproval carries more weight and is a more involved process. It shows prospective sellers that you have your financing in order and are one step closer to obtaining an actual mortgage. The lender verifies your information and reviews your credit report in order to make a decision. The amount of documentation required regarding income, assets and debts varies by lender.
Preapproval helps homebuyers stand out in a competitive market and can often be a deciding factor when multiple offers are made.
There is always a possibility that you may not qualify for as much as you’d hoped, or the interest rate you wanted. That may not be the best news, but it’s better to hear it earlier in the process. Remember too that some flaws in your credit report are often easily correctable. For example, perhaps you have an outstanding bill from your old residence, but you were unaware because they didn’t have your current address. Address those situations before entering final negotiations with a seller.