Understanding the Difference Between Prequalified and Preapproved

Understanding the Difference Between Prequalified and Preapproved

If you’re considering purchasing your first home, you may be overwhelmed and confused to find how much time, patience, and work is required before you’re handed the keys to your dream home. It’s not uncommon to get confused by the many stages of financing a home and the various terms that are used throughout each step of the process.

In order to make buying a home a less intimidating process, we want to tackle two terms that you'll hear pretty often in the early stages of the homebuying process. Many first-time buyers (or perhaps even seasoned buyers) don’t understand the difference between prequalification and preapproval. While these sound like similar terms, you might be surprised to find they’re anything but!

What is a Prequalification?

If you’re in the very beginning stages of the homebuying process, getting prequalified should be your first step. Prequalification provides you with an estimate of how much home you can afford and a projection of how much a lender might be willing to lend you.

With this estimate, you will have a general idea of how much home you can afford and can begin working with a real estate professional to, at least, begin scouting neighborhoods and homes.

With only a prequalification letter, you should know that a seller might not take you as seriously as someone who has been preapproved by their mortgage lender.

What is a Preapproval?

A preapproval is ideal for borrowers who are seriously ready to purchase a home. A preapproval is a more in-depth analysis of a buyer’s financial situation and their credit history. This gives you a better understanding of what home works for your budget and financial situation. With a preapproval letter, you have the ability to make an offer when you find the perfect one.

If you have questions about prequalification versus preapproval, or any other mortgage-related terms, seek a lender who is willing to listen to your current situation.

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