Terms mean different things to different people in different contexts. So when two words that should mean basically the same thing like “prequalification” and “preapproval” seem to refer to two different things… what do you do? Well, for us, it means we explain the difference. Because we want you to always understand what’s going on, and mortgage lingo shouldn’t get in the way.
Prequalification vs Preapproval: Let’s get the differences.
- A prequalification is an approximation of what you are eligible for in a loan, based on the information you provide a lender. This is a really simple and easy thing to do that will help you, as a homebuyer, know a) how much your budget should be and b) allow sellers to know that you’re serious and have actually looked into your ability to afford their home.
- A preapproval takes it a step further. It’s a real-deal statement from a lender saying that you qualify for a specific mortgage after legitimate review of all your financial information, including credit report, pay stubs, bank statement, etc. A preapproval letter is basically the whole mortgage loan, without the property information put in, meaning the only thing it relies on is the appraisal of the home.
Depending on where you are in your search, both are excellent options. If you’re just starting, a prequalification is a great idea to help guide your search. If you’re placing a bid on a home, a preapproval can put you a leg-up on your competition, because a preapproval brings you as close to being a cash buyer as possible. That can be a huge advantage if the seller has multiple offers.
Have some questions about what’s best for you, or ready to get started? Give us a call! We’ve got the same values you do: faith and family. And we love helping you get into your dream home.
The Christian Mortgage Mom