Preapproval and prequalification are two important words for new homeowners looking to get homes on the mortgage. Although sometimes, they are used interchangeably, they have unique meanings. Getting prequalified and preapproved serves as a clear indication of intent from real estate buyers to sellers.
What Does It Mean to be Prequalified?
Getting prequalified is the initial step in acquiring a mortgage loan. The aim of getting prequalified is to get an idea of the range of amounts you will get when applying for a loan. The lender establishes these amount ranges by taking a soft look at your financial records and estimating a certain amount that you qualify for at the time.
In this case, the prequalification process is initiated by the consumer or the borrower. The borrower submits some of their financial records, which can include their debt record, credit record, income statement, assets, savings, housing payments, and the likes, along with a prequalification application. The lender then does a basic review of the submitted records or data and gives an estimated amount that you qualify for. The prequalification process is fast and can be completed within a couple of days from the day of submission. You can also get prequalified over the phone or online.
It is important to note that getting prequalified is a process to determine your creditworthiness, and there is no guarantee that you will get the estimated amount of money in the report. The process does not necessarily include your credit reports, so it does not affect your credit score, and the lenders do not scrutinize your ability to own a home.
What Does It Mean To Be Preapproved?
Getting preapproved comes after you must have been prequalified. It involves a more thorough process than the prequalification stage. Hence, the significance of the stage cannot be downplayed. After you have been preapproved, the bank or the lender provides you with a preapproval offer which is a specific amount of money, the exact amount that you will get at any instance.
The preapproval process is initiated when you, the borrower, submit your financial documents, which will include your financial history (to show financial stability) and other documents like income statements, employment records, assets and debt records, credit reports, current pay stubs, average monthly expenses, your mortgage statement, as well as your home insurance policies. These documents are critical to assist the lender in doing an extensive financial background check.
After you have successfully convinced the bank or lender, you will get a preapproval notification which will contain the exact amount of money and type of mortgage that the lender will offer you. The preapproval notification also shows the exact interest rate that the loan will carry, along with other terms and conditions.
The amount you get in the preapproval letter is the exact amount that the lender is willing to give out, unlike the prequalification which gives an estimated amount.
Prequalification is achieved from the data submitted by a customer, while a preapproval is obtained from the verified data submitted by the consumer. Showing a home seller a preapproval notification shows you are ready and financially capable of acquiring the property. It also gives the property’s estimated value you should be looking into.