Preapproval vs Prequalification

What is the difference between preapproval and prequalification when it comes to a mortgage? It’s rather easy to get the two confused, and many people do just that. They sound interchangeable and their names are easy to get confused. The reality is that the two terms are very different and mean different things.

What is the difference between preapproval and prequalification? 

Prequalification

Prequalification means that you will qualify for a mortgage, but it does not tell you the amount for which you are approved. A prequalification also does not check your credit score, so a Mortgage Broker cannot determine an amount for which you qualify. You can think of this as an open-ended confirmation that you prequalify for the purchase of a home at a certain amount.

Again, prequalification does not offer any guarantees or promises that you can purchase a home of a certain amount. Merely, it simply confirms that you have the ability and overall profile to purchase a home without getting into too many specifics.

Preapproval

Preapproval is more of an official step in the mortgage process. It means your lender has looked at your income, credit score and assets to determine your approval amount. They also have determined the interest rate you will receive. This provides you with a fuller picture of your financial situation and offers more reassurance to a potential seller.

You can think of preapproval as confirming your creditworthiness in a manner which is the closest thing to an actual approval with a contract in place. If you have a home in mind or just want to determine a budget, a mortgage preapproval is the route to go.

Should I Choose a Prequalification or Preapproval?

A prequalification is a great way to receive an idea of how much home you can afford to purchase without going through intense formalities. It is also a useful tool for discovering which type of mortgage may be best for you. Use a prequalification when you are determining if it’s the right time to buy or would like to know where to start.

However, if you are serious about purchasing a home, a preapproval is recommended as it is a more formal step in the homebuying process. It can make the process faster and lets the seller know you are a serious buyer making a serious offer on the home. A preapproval is usually good for 60 to 90 days, as your financial standings can shift as time transpires. 

When you work with a mortgage broker like Range Lending, you work with a provider known for prompt service and lightning-fast speed. In a market where a preapproval is almost a requirement for many offers, working to obtain this can help you land your dream home. If you are ready to secure your next home, then contact Range Lending today to get going on the process.