Pre-Qualified vs Pre-Approved

Great!! You are asking the right questions. Prequalification helps you determine in what price range to look. It also gives you some leverage as you begin the negotiation process. What seller wouldn’t be more interested in dealing with you knowing that you and your mortgage company have determined exactly how much you can afford to invest in a home. But, we go one step farther and submit the application for preapproval. Within a couple of days you get notification from the lender that you are indeed approved for the loan should you decide to make a purchase. Now the seller knows that not only can you afford his house, but you actually have a lender that has committed to you to make the loan.

There are some key differences between prequalification and preapproval for a loan that you need to be aware of. Loan prequalification is a simple process. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. This can be done strictly on a verbal level or electronically over the Internet. The prequalified amount is based solely on the information you provide. In most markets, prequalified buyers usually hold little clout compared to preapproved buyers due to the fact that the information given during the prequalification process is not thoroughly investigated and therefore may be unreliable. Where a preapproved buyer is actually approved for a loan of a certain amount, a prequalified buyer is only told that they might be approved for a certain amount.

Pre-approval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount that you will be eligible for (depending on what type of loan you decide to go with). Being preapproved lets the seller know that you have gone through an extensive financial background check and there should be no unexpected obstacles to buying the home. You can see how being preapproved would be more attractive to a seller than just being prequalified.