The Difference of Being Preapproved vs. Prequalified for a Mortgage
If you’re a first-time homebuyer, applying for a mortgage may seem overwhelming, or at the very least, foreign to you—especially when there are so many terms and conditions. For instance, many borrowers are confused about what it means to be preapproved for a mortgage as opposed to being prequalified. If you can relate, rest assured that you’re not alone. Here is some insight to help you understand the difference between each term and how they apply to you.
What Is a Preapproved Mortgage?
Mortgage preapproval means a lender has agreed to take a close look at your financial condition to determine whether you would meet all underwriting guidelines for a particular loan. You will be informed about interest rates and monthly payments when speaking to the lender, but first you must agree to having your credit report run, and provide proof of income (paystubs, W2’s, tax returns) and document assets (bank statements, retirement account statements, etc.).
If you are preapproved for a mortgage loan, you will receive a letter indicating the lender is interested in working with you. The letter contains the terms they are willing to provide, such as the loan amount, interest rate, and the length and specific type of mortgage loan. However, you are not obligated to work with this lender just because they sent a letter of preapproval.
The great thing about being preapproved is you can take the letter to your Realtor, who will share it with potential sellers. This makes your offer on a given property more valuable than one from a buyer who hasn’t been preapproved.
What Is a Prequalified Mortgage Loan?
Getting prequalified is a less formal way of seeing how much of a loan you can afford. A lender will ask specific questions such as how long you have worked at your current job, how much do you make, and how much of a down payment you would like to put on a house. They may or may not run your credit at this time. As you can see, a prequalification is simply based on the verbal information you provide to the lender. Since the information has not been verified for accuracy, the letter you receive upon being prequalified does not carry the same weight as a preapproval.
Regardless, prequalifications are important in the early stages of the home buying process as borrowers can find out if they are in the right ballpark for a specific home and can easily shop for the best loan terms without spending too much time with one lender.
The Major Difference Between Being Approved vs Prequalified
Preapproved home buyers can feel extremely confident that they will obtain a mortgage loan in order to purchase real estate. Prequalified buyers are not guaranteed to get approved for a loan, but if they provide accurate information and work with a reputable lender, their chances are very good. Also, having a credit score that is less than perfect should never deter someone from trying to get prequalified or preapproved for a loan. There are different loan types for customers with all types of credit.
Reliable Mortgage Professionals
For over 25 years, the professionals at Butler Mortgage have been making the process of securing a home loan an easy one for Central Florida borrowers. Whether you are a first-time or repeat homebuyer, we can sit down and work with you to find the best mortgage that suits your every need. Contact Butler Mortgage today at 407-931-3800 or fill out our free consultation form online to see if you can be preapproved or prequalified for a mortgage loan.