Pre-approved vs. Pre-qualified For a Mortgage: What's The Difference

Written by Posted On Monday, 04 October 2021 14:39
Preapproved vs Prequalified For a Mortgage Preapproved vs Prequalified For a Mortgage

Understanding The Mortgage Terms Preapproved and Prequalified When Buying a Home

As you’re preparing to get a mortgage, doing your research online, you’ll undoubtedly come across terms like “mortgage preapproval” and “mortgage prequalification” when you’re reading resources online.

When you're serious about getting a mortgage, you must know what these words mean so everything can run as smoothly as possible for you. Bank letters will also aid you in what you should offer a home seller and show that you're a legit buyer, so your offer will have much more weight to it.

At their most basic understanding, both “preapproval” and “prequalification” are unique mortgage terms, and they outline the steps used by a mortgage lender to verify their client (a buyer) for a mortgage based on whether or not they can actually afford it.

It becomes imperative when you are trying to get a bad credit mortgage. Nobody wants to go through the process of buying a home only to be rejected by a lender. Never mind the fact you'll be paying much higher interest rates.

Like many financial advisors, lenders, and real estate agents are always preaching, working on bettering your credit score will be crucial.

Important Things to Remember With Mortgage Lingo

Every mortgage lender handles things slightly differently: The meaning of these mortgage terms can change from one lender to the next.  Numerous loan specialists use pre-approval and pre-qualification interchangeably.

Regardless of what sort of loan endorsement you get preapproved and prequalified, you do not have the loan yet.

Preapproval or Prequalification is a route for a bank or mortgage broker to aid you and gauge what you can afford. After you discover your dream home and make a cash offer, the property will, in any case, need to be evaluated by a specialist and examined for potential damage before you can get the credit and purchase the home.

With these things understood, let’s talk more in-depth about them and why you should even care in the first place.

What is a Mortgage Prequalification?

For the most part, a prequalification implies that a lender gathers some essential monetary data from you to gauge how much you can afford to spend on a home.

It's normal for a pre-qualification to depend on self-reported data rather than confirming by getting your credit report or checking on monetary records.

This means a pre-qualification is commonly a rough approximation of what you can afford to buy.

For obvious reasons means it's not as good as a preapproval, which normally includes your loan specialist checking your financial score and surveying bank statements and different reports, which will help them gauge how much home you can buy.

As you start looking for a home, Realtors and homeowners need to know you've been working with a lender so they can be confident you're qualified to purchase. A prequalification letter from a lender does not accomplish this because the lender has not checked your income, employment, credit, and other financial data that is so vital in understanding whether you can afford a home or not.

If you’re very serious about purchasing a property, then it would be in your best interests to get a preapproval so that agents and home sellers can be truly confident in the data you are providing them with. It will also make your offer on a home much stronger.

Frankly, a prequalification with no financial vetting is almost worthless.

What is a Mortgage Preapproval?

A mortgage pre-approval isn't a promise you're going to get funds for the property you want to buy. It only means that an official loan officer (a specialist) has checked your money situation - debt, assets, credit history, and your income - and has come to a conclusion to how much cash you can borrow and how much of a home you could afford to purchase.

Essentially, it's similar to a pre-qualification but much more official and is taken a lot more seriously in the real estate world since a specialist has looked it over. Financial information has been verified.

Difference Between Preapproval and Prequalification

Both preapproval and prequalification provide buyers with an assessment of how much home they can afford to spend.

With that being said, pre-approval is a greater authoritative step in the right direction. It requires the mortgage company to check your monetary data and financial records rather than having no verification.

Because of this, pre-approvals are taken much more seriously as it shows a stronger sign that you can actually afford the home. A preapproval gives you much more credibility and strength to an offer you may put in.

Why Getting Approved is Important

Being approved for a mortgage means a lender has reviewed your current financial situation and has confirmed that you have the ability to make mortgage payments. The preapproval the lender provides will give you how much you can borrow, the down payment, the interest rate you might receive, and how much your mortgage payment will be.

The information can then be used to shop for a home confidently.

As mentioned a few times now, this also helps sellers identify that you can actually afford the home they’re trying to sell, which means your offer will have much more weight to it than someone with a pre-qualification.

Since without one, your offer may not appear genuine to them, and without preapproval, you could slow down the whole closing process, which is not going to be ideal for a seller looking to sell their property as soon as possible.

Final Thoughts

Understanding the difference between preapproval and prequalification is essential. Make sure you understand too that some lenders use these terms interchangeably. In other words, some lenders may do everything a lender would do to preapprove a borrower but call their letter a prequalification.

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