If you plan to shop for a home, most Realtors® will advise getting prequalified or preapproved for mortgage before you look. This helps you, as the buyer, understand how much home you can afford based on what you can borrow. It also shows sellers that you are serious about buying a home. Is there a difference between being prequalified and being preapproved for a home loan? Yes.
Home Loan Prequalification
A prequalification letter means a bank or mortgage lender has looked at your big financial picture—your gross salary, assets and debts—and determined that you meet their initial criteria for a home loan. The lender does not run a credit check. Often, the information is gathered through a simple conversation or online with no documentation. It is not a guarantee that you will get a loan.
Often, buyers use the prequalification process as a way for them to understand what types of loans are available and how much house they can afford.
Home Loan Preapproval
A mortgage preapproval is basically an invitation from the lender for you to apply for loan. In order to get a preapproval, the lender will pull a credit report. They will also ask for copies of pay stubs and tax returns to verify your income. Usually, a loan underwriter will review the documentation.
A loan preapproval is still not a guarantee that you will get the loan—but almost. Once you receive a preapproval then the mortgage loan process will go much faster after you go to contract.
Most preapprovals are written for a specified amount of time—30, 60 or 90 days—to give you time to look for a home. Realtors prefer to work with buyers who have a preapproval as opposed to a prequalification because there’s a greater likelihood that financing will go through and the deal will close.
Watch this video to learn more about the difference between home loan prequalification and preapproval:Return to the Blog