While the terms "prequalified" and "preapproved" are often used interchangeably by borrowers, the meanings are actually a bit different.
What does it mean to be prequalified for a home loan?
You’ve likely gotten pre-qualification offers in the mail before, because they’re super easy to come by. A pre-qualification simply means that some available information about you (like your location, time of employment, etc.) might mean you qualify for a loan product. Having a pre-qualification letter is the first step, and it's also very simple.
To get a pre-qualification letter, you need to let your lender know about the overall picture of your current finances, like your debt, income, and assets. Your lender will then give you an estimate of how much you can qualify for. This process can be completed over the phone or online, and no costs are involved in most places.
However, a pre-qualification doesn’t involve looking at your credit report or taking an in-depth look at your actual ability to purchase a home. During this stage, you'll be dipping your toes in the water to see if it's the right temperature. You can discuss your mortgage options with your lender and begin getting an idea of what price range you should be looking into.
What does it mean to be preapproved for a home loan?
But, before you can actually begin getting serious about the process, you need to get pre-approved. This process is much more involved and it requires you to complete an official mortgage application, usually with an application fee. You'll also need to document your income, debt, and assets so the lender can check into this information and look at your credit.
Most people have not yet found a house when they apply for pre-approval, so the "property" section on the application will be blank. Once you’re pre-approved, however, your lender will be able to give you a specific mortgage amount that you can actually get approved for if you find a house within this range. You might also know your interest rate, and you can even lock it in in some cases.
Once you’ve been pre-approved, you'll get a conditional commitment from the lender in writing saying that they’ll give you this much for X if Y is applicable. Sellers like seeing buyers with pre-approval letters since it means they’re in the position to move right on forward with the process. This can give you a serious leg-up over the competition.
Want to see if you’re prequalified or pre-approved for a home loan? Contact a Horizon Lending Services expert today for more information.
Need more information on the different types of home loans available to you? Visit our website to learn more.