What are the Differences Between Prequalification and Preapproval
Before diving into the home buying market, savvy shoppers like you already have an idea of how much home they can afford. Both mortgage pre-approval and pre-qualification will give you an estimate but only one may help you unlock the door to your new home. Here’s what you need to know about both so you can confidently take the next exciting steps toward home ownership.
What is Mortgage Pre-qualification
Mortgage pre-qualification is a quick way to get an estimate of how much home you can afford. You may also get some information regarding types of mortgages and which may be the best one for your individual financial situation or lifestyle. It’s a nice ballpark number to have if you’re just window shopping.
Pre-qualification can be done in person, over the phone, or even online and typically doesn’t take very long. You will be asked to give the lender your overall financial picture; debt versus income and assets, and they will estimate how much mortgage you can afford.
Bear in mind that being pre-qualified doesn’t guarantee you’ll actually be approved for that amount.
What is Mortgage Pre-approval
Mortgage pre-approval is where the serious home shopping really begins. A pre-approval is much more involved and there is often a fee for this service. The lender will ask for documentation on your finances and will review your credit score.
Once they’ve determined how much they’re willing to loan you, you’ll receive a pre-approval letter listing the amount you qualify for. This is a great bargaining tool in a competitive market as it saves valuable time and shows the seller that you’re committed. Nice!
Getting pre-approved may also allow you to lock in an interest rate for a specified time period so even if they rise you benefit from the lower rate.
When comparing pre-approval vs pre-qualification, keep in mind it’s not an either-or decision. You can get pre-qualified when you start looking, and then, when the time is right, get pre-approved.
One final thing to remember is lenders often require that you get homeowners insurance before closing on your home. And that’s where we can help. Talk to your American Family agent for easy, affordable coverage that’s right for you.