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When it comes to getting a mortgage, being prequalified is a lot different from being preapproved. While these terms are often used interchangeably, there is a substantial difference in their meanings. Here are the basics of prequalification and how it compares to preapproval.
Prequalification is something that many mortgage lenders offer their clients. When you get prequalified, this means that the lender is saying that they would potentially extend a loan to you if all of the information that you have provided them is correct. With prequalification, you are going to talk to a loan officer and give them generic information about yourself. Many times, this process is simple enough that you can do it over the phone. The loan officer is going to ask you for information about how much income you have and how long you have worked at your current employer. They will ask you for general information about how good your credit history is. Based on this information, they are going to tell you approximately how big of a loan you could get with them. It is important to realize that during this process, the lender is not actually going to get access to your credit file. They are also not going to verify any information about your income or check with your current employer.
Another process that you can go through with most mortgage lenders is preapproval. With preapproval, you are going to go through a much more detailed process with the lender. In order to get preapproved, you are going to actually have to fill out a loan application and give your lender specific information about yourself. They are going to need your Social Security number, and they are going to gain access to your credit file. With the credit file, they are going to spend a lot of time reviewing your credit history and the amount of debt that you have. They will use this information to calculate a debt ratio for you. They are also going to require you to provide them with income documentation, such as recent pay stubs or tax returns. The lender is also going to contact your employer to verify your employment with them. This process is usually going to take a lot longer than simply getting prequalified. Once you are preapproved, this means that you can get the loan as soon as you select a property and it needs lender qualifications.
Prequalification is a process that is done mainly so that you can see how much house you can afford. Preapproval carries a lot more weight. Real estate agents and sellers love to see buyers that are already preapproved. This means that the buyer is very serious and that the process can move very quickly after an offer is made. Therefore, if you want to get a head start on the process of buying a property, preapproval is definitely a good route to take.
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