The terms prequalification and preapproval are often used interchangeably, but there are significant differences between the two.
PREQUALIFICATION:
A mortgage prequalification, often called a prequal, is a relatively simple process. By providing a prospective lender with information such as income, assets, and job history, a lender can apply basic underwriting guidelines to provide you with an estimate of how much of a mortgage you can afford. The prequalification process can be done over the phone, requires a minimal amount of time, and generally is provided at no charge. It is essentially the staring point of your home search, and gives you quick check if you have the financial ability to begin looking for a home. The biggest drawback is that it is an approximation of your financial worthiness based solely on the information you provide verbally to a lender.
If the lender determines that you are prequalified they will provide you with a prequalification letter stating the maximum amount of a loan that you qualify for. A prequalification letter, which must accompany any purchase offer, provides a potential seller with overall picture of your creditworthiness and financial ability to purchase.
A word of caution – there are some lenders who will provide you with a prequalification letter without verifying your credit. This renders the document useless. A smart listing agent will always verify with your prospective lender if you credit was verified in the process of your prequalification, if credit was not verified you have torpedoed your chance of getting that home.
Many people are under the impression that a prequalification ensures that you can obtain a mortgage, that is far from the truth. It is a preliminary step in process of obtaining a mortgage and should not be construed as a commitment to lend money.
PREAPPROVAL:
Getting preapproved is a much more involved process. You will be completing an official mortgage application, and usually pay an application fee, and then supply the lender with the necessary documentation to perform an extensive check on your financial background. You will be required to submit documents such as W-2’s, paystubs, bank account information, retirement account information, assets, and perhaps even tax returns. Afterwards the lender can tell you the specific mortgage amount for which you are approved and you will also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock-in a specific rate. With a preapproval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. Obviously, this puts you at an advantage when dealing with a potential seller, as he or she will know you’re one step closer to obtaining an actual mortgage.
Whatever you do take the time to get preapproved or prequalified prior to starting your home search. It is a necessary and critical first step in finding your new home.
Wallingford PA Real Estate – Wallingford,, PA 19086
