When buying a home, the words “prequalified” and “preapproved” are often part of the initial conversation. They may sound the same, but they are actually quite different. Having one over the other could potentially save you thousands of dollars during your next home buying experience. Below, we break down their differences to help you navigate your initial steps in the home buying process.
Most realtors will require you to obtain a prequalification prior to looking at homes to purchase, or presenting an offer on a home to a seller. This is done so the seller knows your offer is legitimate. A prequalification can be obtained after a short conversation with a licensed Mortgage Loan Originator. The loan originator will ask a few questions and do some calculations based on your answers. The calculation results, combined with knowledge of industry loan programs, is used to generate the prequalification.
There are some problems with prequalification. For example, a prequalification can be obtained with one conversation – it does not do enough due diligence. There are many nuances to obtaining a mortgage loan and dredging through these later in the loan process (after making offers and officially obtaining an accepted contract on a house) can be frustrating. Having additional details up front can dramatically help the loan structure and your overall loan experience.
A preapproval requires more information and historically leads to a better chance of your offer being accepted by a seller – even if your preapproved offer is at a lower purchase price than a competing prequalified offer.
To obtain a preapproval, you must answer questions, provide documentation, and fill out a preliminary loan application. From here, the licensed Mortgage Loan Originator can take the additional details and pull your credit, provide a preliminary loan structure, and run it through an automated underwriting system. This automated underwriting decision can help the mortgage professional restructure the loan for your benefit. More importantly, automated underrating decisions can be delivered with your offer to give a seller even more certainty.
The bottom line: preapprovals take more time and energy up front, but often allow the loan to have a favorable structure from the beginning. Preapprovals also lead to a smoother, quicker loan process and make your offer more attractive to sellers.
PRO TIP: When preapproved, be sure to have your realtor include the prequalification letter, the first page of the automated findings, and a custom preapproval letter from your licensed Mortgage Loan Originator. In addition, request your realtor to copy your mortgage professional in on the email. That way the loan originator can piggy back on your realtor’s initial communication with additional details about your preapproval. This will impress the seller’s realtor and further set your offer apart from the others.
Would you like to set your offer apart from all the others? Would you like to get preapproved? Fill out the form below to begin the preapproval process with our Stewardship Mortgage team.