Preapproval vs. Prequalification
The mortgage process can be perplexing, with many processes and jargon that most people are unfamiliar with. This is why we've always sought to be a trusted mortgage partner, assisting our customers as they navigate the process of purchasing a new home. This takes us to one of the mortgage topics that frequently confuses people: preapproval versus prequalification.
They sound uncannily identical. Even when typed out, they appear to be the same! But the truth is that they vary greatly depending on your lender. We'll explain the distinctions in the following sections to help you comprehend them.
In short, preapproval and prequalification are not the same things. However, some lenders do use them interchangeably, as every lender handles approval differently.
Prequalification states that you will qualify for a mortgage, but might not give an accurate representation of how much you will be approved for. Prequalification does not use your credit report, and without this, a lender can only estimate what you will be approved for.
Preapproval is a more official step where lenders look at your income, assets, and credit score to determine the loan amount and interest rate that you will receive.
How to Utilize and Negotiate
Preapproval and prequalification will assist you in determining your mortgage rate and budget range for your future house. Furthermore, the information from both can and should be used while negotiating/placing an offer.
Furthermore, you will have more bargaining power because sellers are more ready to make concessions for well-qualified purchasers who are more likely to close with no problems. If you require repairs or renovations included in your home purchase or want the seller to cover your closing expenses, a preapproval or prequalification will help you receive what you're asking for.
When it comes to buying a property, time is crucial. Particularly while applying for preapproval or prequalification. We recommend applying for a mortgage preapproval when you are actively in the home-buying process, but not so far ahead that your preapproval will expire. A mortgage lender will help you with a prequalification at the beginning of your journey to get a good idea of what you can afford. Then, when you’re ready to place an offer on a home, you can apply for a preapproval.
A mortgage preapproval typically lasts 60 to 90 days. Your financial situation could change in a matter of months, and many lenders are unwilling to accept the risk of a prospective borrower defaulting after the 90-day mark. If your preapproval has expired, you will need to reapply.
A prequalification is a good way to get an estimate of how much home you can afford, and preapproval can verify the financial information you submit to get a more accurate amount. As you can see, they have their similarities but are still very different. Each plays an important role in the home-buying process. Understanding those differences, and how they make each work their best for you is crucial to your success as a home-buyer.