What’s The Difference Between Mortgage Prequalification vs. Preapproval?

When preparing to buy a home you may see the words preapproval and prequalified used interchangeably. This is incorrect because they mean different things. There is a difference between prequalified and preapproved. Preapproved homebuyers have had their financial information and credit scores verified by a mortgage provider. Homebuyers who are prequalified have not had their information verified by a lender.

What Is Prequalify for Home Loan?

Pre-qualifying for a home loan or a mortgage is the first step in the mortgage approval process. Pre-qualifying is simply the act of contacting a home loan or mortgage provider and giving them your basic financial information.

Pre-qualifying is an excellent way to work quickly with a lender to get an idea on what is possible for you. It is a low-investment act on your part. First, it is free. Second, get pre-qualified for a loan doesn’t take very long at all. When you go to prequalify mortgage lenders will ask you some basic questions about your finances, credit, and current income or employment.

When you prequalify for a mortgage loan you will generally get three pieces of information.

• Likelihood of Final Approval – Knowing how likely you are to get approved can help you decide whether or not to continue moving forward in with getting a mortgage to purchase a home or refinance your existing home.
• Loan Approval Amount – The mortgage prequalification should give you an idea how much you could get approved for. You can use this information to begin looking at homes online. This will help you know whether or not you can find homes which meet your needs and your budget.
• Loan Type – There are many types of mortgages. These include a conventional, insured conventional, FHA, VA, and USDA home loan. Each of these have different requirements. Equally important is not all home sellers are willing to accept each loan type. Therefore, knowing the loan type can help you better understand your options of which homes you can purchase.

Pre-qualifying is not the same as a pre-approval. Pre-qualifying is usually just a conversation with a mortgage provider, and none of your information is usually verified. Some people skip the pre-qualification step instead opting to move right to pre-approval.

What Is Preapproval For Home Loan?

A mortgage pre-approval is a more invasive process, but also one which can provide you with more certain information. When seeking a home loan or mortgage preapproval loan officers will ask you to submit documents as evidence to support what you tell them about your finances and income. Additionally, the loan officer will complete a credit check.

The benefit for you is once your finances, income, and credit have been verified and you qualify for a home loan the mortgage provider will give you a pre-approval letter. A pre-approval is the higher standard to demonstrate to a home seller you are able to purchase their home.

Preapproval vs Prequalification Differences

The difference between being prequalified and preapproved is verification. Prequalifying for a mortgage means a loan provider has stated you are likely to be able to purchase a home based on the statements you made about your finances and credit. On the other hand, a preapproval is a much stronger indication of your ability to buy a home.

When seeking a mortgage preapproval the mortgage provider verifies the information provided by the borrower. This means the borrower needs to provide documentation to support his or her declared finances and income. Additionally, the lender will do a credit check.

When deciding whether to be prequalified or preapproved for a mortgage, aim for preapproval.

Prequalified vs Preapproved Special Considerations

There are some special considerations to take when debating between preapproval vs prequalify for a home loan. Truly, it boils down to your seriousness to make progress in buying a home over the next 90 days.

If you are not serious about buying a home in the next 90 days or are just trying to gather information simply follow the prequalify process. On the other hand, if you really want to buy a home get preapproved. The difference between prequalified and preapproved is all about wanting to take action now.

The only other special consideration would be having your credit pulled. Typically, a credit check is done when seeking a mortgage preapproval but not for a prequalification. If you have recently had a major negative credit even or have had many different creditors running your credit it may be better to wait. In this instance, just get pre-qualified for now.

Should I Get Preapproved or Prequalified for a Mortgage?

Many people want to know is it better to be preapproved or prequalified? The answer depends on your goals.

A mortgage preapproval is better if you are actively searching for a home to purchase. If you intend to begin making offers on possible homes you should be preapproved. Home sellers want to see preapproved buyers.

However, if you are several months out from actively searching for and making offers on homes getting prequalified is probably sufficient. Preapprovals do not last forever. By getting preapproved now but delaying your home search you are just setting yourself up to have to do the work all over again in the future.

How To Get Prequalified And Preapproved For Credit For Your Mortgage?

There are many steps to successfully getting approved for a mortgage. The first step to both prequalifying and preapproval is to speak with a mortgage provider. Whether you are seeking to get preapproved or prequalified mortgage lenders will have questions you should be prepared to answer. Furthermore, a preapproval will require submitting documents to the lender for verification. Below is the information you will need for either getting prequalified or preapproved for a mortgage.

Information Needed To Prequalify For A Mortgage

Be prepared for the lender to ask you about the following items.

• Your work history over the last 2 years
• Cash on hand in the bank
• Currently gross monthly income (pre-tax)
• Current monthly expenses

Information Needed To Get Preapproved For A Mortgage

The steps to get preapproved for a mortgage include verifying your finances and checking your credit.Be prepared for the lender to ask you about the following items and request documentation to support each of these.

• Your work history over the last 2 years. Submit the last 3 pay stubs as documentation.
• Cash on hand in the bank. Submit the last 2 full months of bank statements for all accounts including investment accounts.
• Social Security number. This is to complete a credit pull to find your FICO score and verify your monthly liabilities.

Conclusion

Getting prequalified or preapproved for a mortgage is the first step in the home purchase process if you need a loan to buy the home. Prequalification is a less invasive examination to better understand your overall readiness to pursue getting a home loan. A preapproval requires verification of documents and the statements you made to the lender.

A preapproval outranks a prequalification for a mortgage. This is because with a preapproval the information has been verified. Homebuyers who are ready to begin viewing homes and making offers should be preapproved instead of just prequalified.

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