Mortgage Pre-Approval vs. Pre-Qualification

When shopping for a home, there are tons of things to think about. For one, you’ll need to prove to a seller that a bank will lend you what you need to close on the deal. To avoid miscommunication snarls, you have to understand the difference among lender guarantees. These come in the form of a mortgage pre-approval vs. a pre-qualification letter. Pre-Approval-vs-Pre-Qualification for san diego home buyers

The Prequalification

A prequalification is really just to get you started, so you have a ballpark idea of how big a mortgage you can afford. When a bank prequalifies you, it’s giving you a preliminary statement of how much you could borrow, based on income and asset information YOU’VE provided. It is not based on any official verification, because at this point, you haven’t given your bank statements or had bank officers request your credit report.

The Preapproval

A preapproval takes the process much farther. The lender will ask for your employer’s name and your Social Security number to verify your income and creditworthiness, as indicated by your credit reports.

A bank will issue a mortgage preapproval once it has all your documents in hand. These could include income verification from employers, recent tax returns, bank and brokerage statements, and credit reports. The bank will then have a specialist call an underwriter to determine how much you’re capable of paying and how big a mortgage loan you can afford. That assessment will result in a preapproval letter from the lender that you can present when you bid for a home. Most lenders can issue this letter within a few days of you providing them the necessary information. If it takes longer, be wary of their timeliness to be able to fund actual loan (should you use them).

Pre-Approval-vs-Pre-Qualification difference san diego

Having a preapproval in hand is the standard today for any seller to take you as a serious buyer. It lets the seller know you’re a good candidate, and that the bank is likely to award you a loan. It’ll also make you feel more prepared to buy.

However, complicating matters, banks don’t always define the terms in the same way. For example, some banks don’t use the word, “prequalification.” Instead, they use the term “preapproval” for what other banks define as prequalification. And what most banks call a “preapproval.” This is something that should be streamlined between all lenders to prevent misleading all parties involved.

Remember, a prequalification or preapproval is really just a “quote.” You’re not required to borrow from the bank that issues your prequalification or preapproval letter. All banks are not created equal. Terms, rates, and fell all vary, so shop around!

 

For more information on this topic:

619.384.2248
Ryan@RyanYourRealtor.com
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