We understand that preapproval and prequalification are crucial steps when buying a home, and there is a lot of confusion out there as to which one to pursue. The process can be overwhelming, and it’s important to know the difference between the two to make an informed decision. In this article, we’ll explore preapproval and prequalification, their differences, and why preapproval may be the better option to set you up for the most success when buying a home.
What is Prequalification?
Prequalification is the initial step in the home buying process. It’s a simple process that involves providing a lender with your financial information. The lender will then evaluate your information and provide you with an estimate of how much you can afford to spend on a home. Prequalification is an informal estimate of what you might be able to borrow, based on your financial information, such as your income, debt, and assets. Prequalification can often be done online or over the phone and typically does not require a credit check.
What is Preapproval?
Preapproval is a more involved process than prequalification. It involves submitting a formal mortgage application to a lender, providing them with all of the required documentation, and undergoing a credit check. The lender will then verify your income, assets, and credit score. After the lender has reviewed all of your information, they’ll provide you with a preapproval letter that outlines how much you can borrow and what your interest rate will be. A preapproval letter is a commitment from a lender to lend you a specific amount of money to buy a home, provided that certain conditions are met.
What are the Differences between Prequalification and Preapproval?
The main difference between prequalification and preapproval is the level of detail and commitment involved. Prequalification is a rough estimate of how much you can afford to borrow, while preapproval is a commitment from a lender to lend you a specific amount of money to buy a home. Preapproval typically involves a credit check, while prequalification may not. Preapproval is a more formal and detailed process that provides you with a clearer understanding of what you can afford to buy.
Why is Preapproval Better?
Preapproval is a better option for several reasons. Firstly, preapproval gives you a better idea of how much you can afford to spend on a home. This can help you narrow down your search and avoid wasting time looking at homes that are outside of your price range. Secondly, preapproval can give you an advantage in a competitive market. If you’re in a bidding war with other buyers, a preapproval letter can show the seller that you’re a serious buyer who has already been approved for a loan. This can give you an edge over other buyers who have only been prequalified.
How to Get Preapproved?
Getting preapproved is a more involved process than getting prequalified.
Here are the steps you’ll need to follow:
- Find a lender: Start by researching lenders in your area, or ask friends and family for a referral to a local trusted company.
- Complete a mortgage application: Fill out a formal mortgage application with your chosen lender. We offer one of the best online application experiences out there. Get Started Here!
- Provide documentation: Provide your lender with all of the required documentation, including your income, assets, and credit score. When you sign up for our app, you can easily upload your documents from your computer, or take photos with your phone!
- Wait for approval: Wait for your lender to review your application and provide you with a preapproval letter.
To wrap it up, preapproval and prequalification are both important steps when buying a home. While prequalification provides a rough estimate of how much you can afford to borrow, preapproval is a more formal and detailed process that provides you with a clearer understanding of what you can afford to buy. Preapproval can give you a competitive advantage in a tight housing market and help you narrow down your search to homes that are within your price range.
If you’re considering buying a home, we highly recommend that you get preapproved. It’s a tough market and having all your ducks in a row is essential in your home buying success!