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Mortgage prequalification vs. preapproval
The difference is subtle, but it can have important implications.
Prequalification involves an unverified account of your personal finances, as reported by you. Only after your lender or broker verifies those numbers can your prequalification become a preapproval. When shopping for a new home, you’re going to want to know the nuances between the two.
What is mortgage preapproval?
Mortgage preapproval is when a lender takes a look at your income, assets and three-bureau credit report. They use this information to determine how much you can afford in a home and the mortgage programs you qualify for.
Obtaining a preapproval is among the first steps you’ll take when shopping for a home. Home sellers want to feel confident that you’ll be able to secure financing and buy their home. Accompanying your offers with a fully validated preapproval letter can help build that confidence and give you an edge over other applicants in a competitive market.
What is mortgage prequalification?
A mortgage prequalification is an estimate of how much you may qualify to borrow. To obtain one, you tell a lender how much you make, how much you have in savings and approximately what your credit score is. In return, the lender may give you documentation showing what you might qualify for.
A prequalification allows you to get a feel for your mortgage options without dinging your credit. But because there’s no verification involved in a prequalification, you should never use one for practical purposes in the home buying process. It’s simply a frame of reference for your eyes only.
What’s the difference between prequalification and preapproval?
Only a preapproval will give you a true edge in the homebuying process, though a prequalification can still be useful in letting you know where you stand financially. Other factors to consider:
|When should I choose this option?||When you’re ready to shop for a new home||When you’re thinking about buying a new home|
|How long does it take?||30–60 minutes||5–10 minutes|
|Cost||Typically free||Typically free|
|What information do I need?||Credit report, income documentation and asset statements||A general idea of your credit score, income and savings|
|How long does it last?||60–90 days||Because it’s only a frame of reference, there’s no expiration|
Preapproval vs. prequalification: Which one makes more sense?
If you’re entertaining the idea of buying a home and need only a general idea of your qualifications, you may not need preapproval. Preapproval takes more time than prequalifying, and it temporarily drops your credit score due to a check on your credit.
When you’re ready to shop for a home, preapproval provides the details your lender and seller need to determine your ability to close on a loan. And you may need it even to put in an offer.
Not all preapprovals are created equal
Your lender may send a preapproval letter before it’s fully vetted your qualifications. It may have pulled your credit report, but unless you provide your W-2s, bank statements, pay stubs and related financial documentation, there’s a chance you still might not qualify for a loan.
To avoid unnecessary complications, make sure your lender receives all the documents it requires for preapproval before you make an offer on a home.
Compare lenders that can help you get preapproved or prequalified
A prequalification can help give you a general feel for where you stand financially — but it’s an unverified document and is only intended for you. If you’re actually in the market to buy a home, a fully validated preapproval can give you an edge over other borrowers without one. To get started, compare your mortgage options to find the right fit for you.
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