If you are getting ready to purchase a home, you probably have heard the terms prequalified and preapproved. Many buyers think these terms are the same thing, but they are quite different.
Getting prequalified consists of a discussion between you and a loan officer. A loan officer collects information regarding your income, monthly debts, credit history, and assets. Based on that information, the loan officer then calculates an estimated mortgage amount for which you qualify. Getting prequalified is basically receiving an estimate of what you can afford.
Getting preapproved, on the other hand, is a more comprehensive approach, providing an actual decision on a home loan. This is actual credit approval, and it includes some considerable benefits.
As a buyer, you will have a greatly improved negotiating position when you are preapproved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The preapproval letter lets the seller know you are a serious buyer. As a preapproved buyer, you also can close on a property more quickly, which is another major consideration for a motivated seller.