Prequalification versus Preapproval – The differences you need to know!

Sometimes the terms prequalification and preapproval are used interchangeably, but they definitely do not mean the same thing! As a homebuyer, you need to know the differences between the two, particularly when you are ready to make an offer on a home. In the current market, it is essential to work with a lender PRIOR to making an offer! Here’s what you need to know:

Prequalification

With the prequalification process, your lender will ask you questions about your income, savings, and they will also pull your credit scores. This is a quick and simple process that most every lender can do either online or over the phone. The prequalification gives buyers an understanding of what they can afford when shopping for a home. If your lender does provide a prequalification letter – that’s great – but it is NOT a guarantee that you will close on a loan.

Preapproval

The preapproval process is similar to a prequalification process, but it is more in depth and requires information from the potential borrower. You will be asked to provide information such as paystubs, bank statements, and perhaps even state or federal tax returns. Your credit score will also be reviewed as part of the preapproval process. When your lender does provide you with a preapproval letter, it carries much more weight with both the seller’s real estate agent and the seller’s themselves, because it substantiates that the lender has verified you can afford the home you want to purchase!

The differences between prequalification and preapproval are pretty significant. I always urge my clients to speak with a lender prior to beginning the home buying adventure. All lenders are very happy to work with potential customers and when you have that preapproval letter in your hand, you are standing on more solid ground when making an offer! Let me know if you need to get connected with a lender and I can give you some great lender resources!