Preapproved vs Prequalified
Navigating the mortgage industry can come with some confusing jargon. You may come across terms like preapproved, underwriting, prequalified, or escrows and be immediately overwhelmed. Don’t get confused or frustrated, because you aren’t expected to know the inner workings as a homebuyer for the mortgage loan you are applying for. What is the difference between getting prequalified or preapproved? Here is a brief breakdown of the two.
When trying to get prequalified for a mortgage loan, your credit score and credit report are used to determine if you qualify for a loan, things like student debt, car loans, credit card bills are taken into consideration when determining if you can prequalify. Your household income and assets are compared to any outstanding debts you have in order to calculate the maximum monthly payment you could afford. These items are also used to determine the maximum price you could afford for your new home. Basically, pre-qualification looks at an overview of your financial history. Being preapproved for a mortgage requires additional steps to determine your eligibility. It would be best if you were prepared to have your W-2 forms, pay stubs, bank statements, and tax returns ready because those will be used to determine whether you can be prequalified. Mortgage pre-approval requires this additional documentation to verify your income, assets, and debts.
The differences? Not that much. Getting prequalified allows you to have a better understanding of what will fit your budget so you can save time right away in the beginning by looking only at homes that you know will fit within your budgetary guidelines. Imagine…finding that house you love and then learning you can’t afford it. Getting preapproved improves your chances of getting verified approval for a mortgage loan. It provides you with a little increase in your chances that your mortgage loan application will be approved—but it requires more work on your end. Regardless of whether you have a pre-approval or pre-qualification letter—both can help make you stand out and show a seller that you are a serious contender.
At RP-Mortgage, the goal is to help you understand the ins and outs of the mortgage industry with as little confusion as possible. The more you know heading into a mortgage application, the better you will feel during the review process.