When shopping for a home we highly recommend being as ready as possible. One of the key steps is talking with a good mortgage broker or banker and starting the pre-approval process. Although it’s easier to get prequalified, most sellers and realtors will want an actual preapproval to be included with the offer.
What’s the difference between getting prequalified and preapproved?
Pre-qualifying is the lesser of the two. It gives you an idea of how much of a loan you’ll likely qualify for. Pre-approval is taking it a bit further and is a conditional commitment to actually do the loan.
Prequalification and preapproval both refer to a letter from a lender that specifies how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These letters provide useful information, but are not guaranteed loan offers.
What is difference between a prequalification letter and a preapproval letter.
While there are some legal distinctions, in practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions. Basically a prequalification is based on a few bits of information you provide to a lender. Getting pre-qualified involves providing a bank with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow.
while the lender wants to see actual documentation for a preapproval. In our area it’s customary to provide a preapproval letter with an offer. With a preapproval they collect more information to give a higher level of certainty that you’re able to get the loan.
Is pre-approval a general endorsement by a bank?
No, when you are pre-approved, it is for a specific loan program from a specific lender. Not all lenders offer all loan programs. You may need to get approved with a different lender or for a different loan program with the same lender, depending on your financing options at the time you buy a house. Check with the agent or broker who helped you gain loan pre-approval before you write an offer. If you think you will need to get re-approved for a loan, make sure to allow enough time for this in the purchase contract.
Is the pre-qualification a guarantee that I will get the loan?
No. The lender or mortgage broker is under no obligation to grant you a loan. Most pre-qualification letters state that a buyer appears to be qualified for a certain loan amount. There is usually a disclaimer to protect the lender or broker in case you fail to qualify. Before a lender will actually loan money, you must complete a loan application.
Is there anything official about a pre-qualification?
No, loan pre-qualification is an informal process. After a review of your financial status, a loan agent or broker will issue a letter stating that if the information provided is accurate you should be able to qualify for a loan of a certain amount. Often, these letters are form letters. Even if a pre-qualification letter is personalized, it usually contains disclaimers to protect the loan agent. Consequently, some real estate agents feel that pre-qualification letters are worth little more than the paper they’re written on.