When looking for a house, the last thing you want is to find out you don’t qualify for a home you had your heart set on. Knowing your options before you start house hunting will help you prevent this from happening. The borrower has the option of doing either a prequalification or a preapproval to help them understand their options, and each preemptive measure offers different advantages for homebuyers. Knowing the difference between these two options will help you purchase a home that’s right for you.
In a prequalification, the lender reviews the financial situation of the borrower based on the information they provide. This is a very easy and quickly-executed process that provides the lender with an estimate of how much the borrower may be eligible to receive. During the prequalification process, the lender will discuss the buyer’s income, credit and other assets to determine the potential options for a mortgage loan. This allows potential homebuyers to get a fairly good estimate of their ability to purchase a home, but does not provide the buyer with much of an advantage when looking at properties. While a prequalification is a good option for some homebuyers, it is important to understand that a prequalification does not guarantee you a mortgage loan.
In a preapproval, the mortgage loan will actually go through underwriting. This means the paperwork will be completed based on a to-be-determined property and the underwriter will actually approve the buyer before a house is ever decided upon. This is a more detailed process that, once completed, reasonably ensures that a lender is ready to make a mortgage loan based on the information provided at the time of the preapproval. The downside to this process is that it takes more time and more paperwork than a prequalification. However, the process is very thorough and usually allows for a streamlined purchase once a home is chosen under the loan terms that have been preapproved. This process has a distinct advantage for any homebuyer in that they are that much further through the process of obtaining a mortgage – a big advantage when there are multiple offers for a seller to select from.
Understanding the difference between these two options will allow homebuyers the opportunity to choose the method that best fits their needs. For help choosing an option, or for more information about any aspect of the lending process, please contact Simply Home Lending today.