The Difference Between Preapproval and Prequalification
Preapproval and prequalification have a similar sound and purpose, so it’s easy to see why someone might conflate their meanings. However, the difference between preapproval and prequalification is important. Understanding what sets them apart can help you decide which option best suits your needs when you’re shopping for a home.
What Is Prequalification?
Prequalification is the most basic check of your creditworthiness. As Experian explains, a lender will use the information that you provide regarding your finances. In some cases, they might also complete a soft credit inquiry. This type of inquiry won’t impact your credit scores, so there’s no need to worry about giving permission. A prequalification is fast and easy, but it isn’t always accurate. It also isn’t a guarantee of mortgage approval.
What Is Preapproval?
Going for preapproval takes things up a notch. As NerdWallet reports, it requires you to provide evidence regarding your finances, which takes more effort. In return, you’ll receive a more accurate picture of what you’re likely to be approved for. While getting preapproved doesn’t guarantee that you’ll be approved for a home loan, it does provide you with a chance to verify that your finances are in good shape so that you aren’t caught off guard by any surprises when you find the house that you hope to buy. It also gives you a clear idea of exactly what you can afford to spend by showing you how much a lender is willing to lend you.
Why Get Prequalified?
There are many paths to homeownership. Some will choose to get prequalified. Many will skip straight to getting preapproved. Either option works. The right path is the one that suits your circumstances. Why do some aspiring homebuyers opt to get prequalified? As Ramsey Solutions indicates, getting prequalified is an easy way to get a rough idea of what your housing budget might be. It’s especially useful when you’re very early in the buying process. Just be sure to give accurate data to the lender. After all, the estimate will only be as good as the information that you provide. Getting prequalified can also help you get a feel for what it’s like to work with a lender. However, it’s important to recognize the limits of prequalification. While it may help you with your budgeting, prequalification doesn’t generate the same respect from others that preapproval does.
Why Get Preapproved?
Getting preapproved may take more effort, but it pays off. If you are preapproved, then you’ll walk away with a preapproval letter that states you’ve been preapproved for a certain amount of financing. As Investopedia reports, this letter demonstrates that you’re a serious buyer, which is important when you’re interacting with real estate agents and sellers. They’re more likely to be interested in what you have to say if they know that you can get the financing to back up your offer. A preapproval letter is often the proof you need to show that you can.
Is Getting Prequalified or Preapproved the Same as Applying for a Home Loan?
Getting prequalified for a home loan is very different from applying for a home loan because it doesn’t require any documentation. Getting preapproved is a closer experience because you’ll need to provide much of the same information and documentation. In fact, being preapproved can actually save you time when you’re ready to formally apply for a home loan because your lender will already have much of what’s required. However, you’ll still need to go through the application process. According to Homebuyer.com, you can reach out to your lender and ask them to convert your preapproval to a formal loan application once a seller has accepted your offer. To ensure the process runs smoothly, be ready to provide the additional information that will be needed.
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Are you ready to get preapproved or prequalified? PrimeLending Dallas takes pride in helping our customers reach their housing goals. Contact us today to discuss how we can assist you.