How to Tell the Difference Between Prequalified and Preapproved and More Latest News Here
At the start of your home buying journey, two of the terms you can expect to encounter are prequalified vs preapproved. While each of these terms generally has its own meaning, there may also be some overlap between them, depending on the lender and the type of mortgage you are looking for.
One thing that prequalification and preapproval have in common is that they are steps the borrower would go through before choosing a new home because they trigger the purchase price threshold.
However, there are critical differences between them, with prequalification being more general and preapproval more formal. In this article, we’ll help clarify some of the nuances between prequalified and preapproved in the mortgage application process.
Mortgage prequalification explained
A mortgage prequalification is a feature provided by lenders designed to inform potential buyers of the price range they can afford for a property and an approximate interest rate on the mortgage. It is often a borrower’s first step towards home ownership.
Depending on the lender, a borrower can go through the prequalification status process online or over the phone. They must be prepared to share certain personal financial data with the lender and agree to a credit check. By doing so, they can expect to know if they are likely to be approved for a mortgage.
Take the first step by completing this quick and easy online prequalification application. It’s free and only takes 60 seconds.
Although this is not a commitment on the part of the lender, it is an overview of the parameters that the borrower can expect to find when buying a home. A mortgage pre-approval will not expire, so unless a borrower’s financial situation or interest rate environment changes drastically, they can expect an estimate of what they can afford to hold .
Mortgage pre-approval explained
A mortgage pre-approval is a more formal status compared to prequalification and is provided by the lender in the form of a letter or document. It details the highest amount a borrower could qualify for in a mortgage loan and commits the lender to fund the loan as long as the borrower’s financial situation is verified and remains intact.
To obtain pre-approved status, the borrower must complete an application and disclose information such as income, savings, and debts, including credit card balances and student loans, for example. If the application is approved, the lender will decide the mortgage amount and terms such as the interest rate.
The pre-approval process can take anywhere from a few minutes to a week, depending on the lender. Getting a pre-approved mortgage could make the home buying process faster and smoother, since the seller is confident that you can afford the home and has been pre-approved for a mortgage up to a year. specific amount.
While a pre-approval brings the borrower closer to purchasing a home, the loan remains subject to the underwriting process, where application details are verified. The results of the underwriting could change the terms or status of the loan.
By completing Total Mortgage’s green light approval, you will be well on your way to homeownership. Indeed, this feature guarantees you a closing of 21 days, which gives you more time to spend on finding the right property.
Key Differences Between Prequalified and Preapproved
When you compare prequalification to preapproval, you will find that there are several key differences, including the following:
- With a prequalification, there is no formal application process whereas with a preapproval, an application is required. Although a credit check is part of a pre-approval, it may or may not be included in a pre-qualification.
- A pre-qualification status will let you know the high end of the mortgage size you might be approved for, while a pre-approval goes one step further by providing loan approval on a conditional basis.
- The response time for a mortgage pre-qualification should be fast while in some cases obtaining pre-approved status can take several days.
- A loan pre-qualification is not something you submit with an offer on a property, whereas a pre-approval letter can be used to convince the seller that you are ready to move forward with a deal.
- The information you will need to share is different for prequalification versus preapproval. With prequalification, you can expect to provide a high-level overview of your financial profile, including your income and debts, without having to upload any documents. However, with pre-approval, the requirements are more specific and will require proof of income as well as bank, credit card and tax statements.
- A similarity between prequalification and preapproval is that both processes take place before you start looking for a home. Pre-approval in particular demonstrates to the seller that a borrower is serious about buying a particular property and that a lender is willing to work with them.
Which is better for me: prequalified or preapproved?
If you are deciding between being prequalified or preapproved, there are a few things to keep in mind. Although a prequalification will help you find homes that may be within your reach, it is not a guarantee that a lender will approve your mortgage application. Therefore, even if you receive pre-approval, it is not yet time to hire the movers.
If you’re looking for greater certainty, the pre-approval process is probably what you need. BankRate chief financial analyst Greg McBride compares the mortgage application process to a road junction, saying pre-qualification is like a yellow light, while a pre-approved status is a green light for lending. buying a house.
While pre-qualification gives the potential buyer some price guard, pre-approval gives them more certainty that they will be approved for a mortgage.
Now that you know the main differences between being pre-qualified and pre-approved for a mortgage loan, you may be ready to take the next step towards home ownership. Before attempting to obtain pre-qualification or pre-approval status, assess your situation to determine how much down payment you can afford. This is a piece of data that a lender might ask you to get a better idea of your loan-to-value ratio.
Total Mortgage has experts on standby in branches across the country. Find a location in your neighborhood and start the loan pre-approval process for your new home today.
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