Difference Between Preapproved and Prequalified
The home buying process can be tricky, especially when you’re looking for a mortgage. One of the first steps in the mortgage process is figuring out how much house you can afford. This is where preapproved and prequalified come into play. Both terms relate to the amount of money a lender is willing to loan you, but there are some key differences.
Prequalification
Prequalification is the first step you should take when starting the homebuying process. It’s a preliminary estimate of how much a lender is willing to loan you based on certain financial criteria. You don’t have to provide any documentation or undergo a credit check to get prequalified. Instead, you just need to answer some basic questions so that the lender can get an idea of your financial situation.
While prequalification is a good starting point, it’s important to remember that it’s not a guarantee. The lender hasn’t verified any of the information you provided, so you might not actually be able to get the loan amount that you’re prequalified for.
Preapproval
Preapproval is the next step after prequalification. It’s a more in-depth process and involves a lender verifying your financial information. This includes checking your credit report, income, and assets. With preapproval, you’ll have a more accurate idea of how much a lender is willing to loan you. This is because the lender has done their due diligence to ensure that you’re a good candidate for a loan.
Preapproval can be beneficial in a few ways. For one, it lets you know for sure how much house you can afford. This can make the home buying process smoother since you’ll have a clear idea of your budget. Additionally, preapproval can give you an edge in a competitive housing market since it shows sellers that you’re a serious buyer with financing in place.
Which Should You Choose?
The short answer is: both. Prequalification is a good starting point and can give you an idea of what you can afford. However, preapproval is a more accurate picture of how much you can borrow. Having a preapproval letter in hand can also give you an advantage when you’re making an offer on a house.
Getting prequalified and preapproved are both important steps to take when you’re buying a home. While they’re similar, there are key differences between the two. Understanding these differences can help you make more informed decisions about your mortgage and the home buying process.
Table difference between preapproved and prequalified
| Preapproved | Prequalified |
|---|---|
| Preapproved refers to a formal offer from a lender to provide a borrower with a specific loan amount and interest rate, based on a thorough analysis of their financial history and creditworthiness. | Prequalified refers to a preliminary evaluation of a borrower’s financial position, usually based on limited information such as their income and credit score, to determine their potential eligibility for a loan. |
| Preapproval typically requires a hard credit check and involves more detailed verification of the borrower’s financial information, resulting in a more accurate determination of their loan eligibility and terms. | Prequalification usually involves a soft credit check and may be done online, providing a quick and easy way for borrowers to get an idea of what loans they may be eligible for. |
| Preapproval provides borrowers with greater certainty and bargaining power in the homebuying process, as sellers are more likely to accept offers from buyers who have already been preapproved for a mortgage. | Prequalification is a helpful tool for borrowers to gauge their loan options and estimate their potential borrowing power, but does not guarantee approval or specific loan terms. |