Preapprovals Vs. Prequalifications: Which Is Better?

As you start asking questions about purchasing a home, you’ll undoubtedly run once again into terms unique to the mortgage industry that can make navigating the process unnecessarily complicated if you don’t know what they mean. Among those most often confused are prequalification and preapproval. Both used in reference to mortgages, each reflects a different stage in the application process, though, all too often, people mistakenly use them interchangeably.

Both prequalifications and preapprovals provide mortgage lenders in Huntington Beach with an estimate of the home price a borrower can afford to purchase. Neither is a commitment to lend the borrower that amount.

Mortgage Prequalification

A mortgage prequalification is a lender’s basic estimate of how much you may be able to afford if you were to apply for a mortgage from that lender. It is a general idea the lender came up with based on self-reported information, such as information you’ve entered into a form.

Sometimes a mortgage prequalification will arrive in your mailbox or email inbox in the form of a marketing offer based on unverified information publicly available about you. Other times, you may seek a prequalification without wishing to provide all the documentation or have your credit score pulled for a full pre-approval.

The caveat to all prequalification offers is that the offer is contingent on whether you can verify and support the information on which it’s based.

Because a mortgage prequalification requires no verification of your qualifications for a prospective lender to offer it, it is not compelling to sellers as a reason to accept your offer to purchase. Still, a prequalification can give you greater confidence in pursuing a mortgage preapproval, which sellers may well find compelling.

Mortgage Preapproval

Preapproval is one of the most important steps in the homebuying process. It means a particular lender has reviewed your specific financial information and decided that were you to submit an application for a mortgage to that lender for the preapproved amount, the lender would approve that application barring any unforeseen circumstances or conditions.

Preapproval, therefore, requires you to provide personal and financial documents that may include:

• Social Security card
• Tax returns
• Pay stubs
• W2s
• Bank statements
• Investment account statements

A lender will carefully review and verify this information, as well as your credit history.

What Mortgage Preapproval Includes

A mortgage preapproval contains more than just the amount of money a lender is willing to lend you to buy a home. It also includes:

• Loan Amount
• Loa Program
• Down payment information
• borrower credit score

Preapprovals vs Offers to Lend

Mortgage preapprovals are not to be confused with an approved mortgage loan, either. A mortgage preapproval is not a firm commitment or an absolute. It is an estimate, and it is contingent on certain requisites. The figures in an offer to lend, including dollar amount, interest rate, downpayment, terms, and fees, are all firm, provided the borrower accepts the offer by the deadline the lender has set.