Preapproved vs Prequalified
Preapproved vs prequalified for a real estate purchase, “what is the difference?” this was the question that my clients Jane and Jerry had when they first began looking for a new home. They had received a letter from a lending institution that was very generic. Which did they have? Here is the difference between the two:
Prequalify - the mortgage professional reviews your finances, credit report and income and then, based on their experience, estimates an approximate amount of a mortgage that you should be able to qualify for.
Preapproval - you actually apply for a mortgage with an address “To Be Determined Later” and the application is submitted to a lender and an approval is issued subject to the home qualifying.
Prequalify
If you are looking for a quick indication of whether you will qualify for a loan, many mortgage bankers will prequalify you. A prequalification is a quick look at your assets and liabilities, your annual income and a determination of how much of a mortgage payment that you should be able to afford assuming that none of these conditions change before the settlement date. The mortgage professional will then issue you a preapproval certificate or letter on company letterhead indicating that they have reviewed your finances and that is appears that you could qualify for a mortgage loan up to a certain amount.
The preapproval is the actual process of applying for a loan and sending your loan application through the underwriting process. You will receive a commitment for a loan up to a certain amount that is conditional upon an appraisal of the the desired property meeting the bank’s approval and the purchases price. When you go through this process it will save you time once you find your dream home. The loan application process takes approximately 30-45 days. It also is very positive when you do make and offer because the other party knows that you can afford the home and that the closing process can be quicker than if you were not preapproved. Apply for the maximum in a preapproval amount. You can reduce the mortgage amount in a day or two. Increasing the mortgage amount is the same as going through the approval process all over again.
UNDERSTAND… A prequalification is NOT a guarantee that you will get a loan, this is only an estimate.
Preapproval
In the case of Jane and Jerry, they received a prequalifying letter — not a preapproval. A common misunderstanding on the part of first-time home buyers.