There are so many new terms you’ll discover once you submit your application for a home loan but one of the first might be presented prior to submitting any application whatsoever- prequalification. As you prepare to go shopping for a home and you first speak with a real estate agent, the agent will want to know if whether or not you’ve spoken with a lender. If you say that you have and you’re prequalified, it’s possible the agent will ask you to take the next step and get preapproved before getting into the agent’s car to look at homes.
When you first get prequalified, you’re given a certain comfort level about how much you can afford. A prequalification is typically issued after a conversation with a loan officer, usually over the telephone and after answering a few questions. The loan officer will ask about your employment to determine you’ve been working for at least two years. How much cash do you have available for a down payment and closing costs? The loan officer will ask about your current credit profile as well as other current credit obligations you may have.
After this conversation, the loan officer will present to you a prequalification amount, the amount you can borrow as well as give you an estimate about what your new mortgage payment will be based upon current mortgage rates.
A preapproval takes the prequalification to the next level and is the level your agent wants to see and it’s also the level a seller wants to see. A preapproval is a prequalification that has been verified. Instead of telling a loan officer how much you make you’ll provide your most recent paycheck stubs covering a 30 day period. A credit report will be pulled to verify minimum monthly credit payments as well as pulling a credit score.
The key difference between a prequalification and a preapproval is the level of validation. Both will tell you about how much you can qualify for but the preapproval verifies the information provided.