Preapproval versus Prequalification
You may have heard the terms Preapproval vs. Prequalification used interchangeably but in truth they are very different. It is important to know the difference when buying a home.
Prequalification: This is an estimate of the loan amount the lender may be willing to loan you. This is based on the preliminary information you provide and helps give you an idea of a purchase price range. A prequalification is just a general figure to help get started on finding and purchasing a home. This does not involve any commitment from you or the lender.
Preapproval: This is more formal than a prequalification and will require documentation regarding your income, assets and debts. Your lender will run a credit check and a fee is required. Once a preapproval is granted your lender has tentatively committed to an amount for your home loan. With this preapproval you will receive a form that outlines the approx. mortgage loan amount and monthly payment for which you qualify. The terms of the preapproval are subject to conditions or documentation.
Why is a preapproval important? This allows you to shop for a home with confidence. This also lets real estate agents and sellers know you are a serious buyer. Although this preapproval does not guarantee your loan approval and does not mean that you must use that lender for your home, if you do use the same lender the process may go much more quickly.
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