I’m often asked by home buyers what the difference is between mortgage prequalification and preapproval. Josh Covett of Movement Mortgage, an excellent mortgage lender, sums up the difference pretty succinctly:
Preapproval Vs. Prequalification: These terms are often used interchangeably — but there are big differences between the two. With a prequalification, the lender is performing a few checks on the prospective borrower’s finances to determine the home loan amount they may qualify for. A prequalification letter tells you how much the client will probably be able to borrow from the lender, if further examination supports the preliminary findings. For a preapproval, however, the mortgage lender examines and verifies the client’s debt, income, savings, assets and credit report. The information must satisfy the lender’s underwriters that this client is a low risk and a good prospect for repaying the loan. Preapproval is more vigorous vetting and a lengthier process than prequalification; buyers who submit to the process and are approved are serious buyers who are worth your time and energy. Buyers who can show a preapproval letter to a seller are more likely to be seen as serious, potential buyers who can qualify for the loan and follow through on their bid.
If you’re thinking about buying a home, it’s worthwhile to ask your lender if they’re going to provide a mortgage prequalification or preapproval prior to writing your offer. A few other tips in selecting your lender:
1. Do not use a lender with who does not provide you with his or her cell phone number.
2. Be very wary of a lender who does not have a local area code.
3. Use a lender who is either recommended by a trusted real estate professional or trusted friend or family member.
4. Do not select a lender based on an internet promotion, free toaster giveaway or radio advertisement.
Image Credit: Copyright Alan Cleaver Via Creative Commons License