When you begin shopping for a house, condominium or any type of property there are two very important things that you need to learn. There is a very big difference between preapproved and prequalified. Their difference makes a huge difference in how soon you can move, and how quickly you can close on the house you wish to buy, as well as how serious your offer will be seen by the sellers.
Prequlified is viewed as the better option for those who are serious about truly purchasing a house or other piece of property. Preapproved is also a good idea for those looking to purchase a house and just wish to know approximately how much they can reasonably expect to be approved for.
Preapproved is the process of talking to a mortgage broker and giving them some information about your finances. This includes, how much you make annually, what your car payments cost, what other credit related bills you have, and how many dependants you have. All of these numbers affect the amount of a mortgage you can be approved for. Typically, at this point, a mortgage broker will give you an amount of what you can comfortably afford to pay for a mortgage payment, as well as a maximum amount that you can afford overall. None of the information is verified, at the most you can receive a letter from the lender stating the maximum amounts you can afford, however this is never a guarantee that you can get approved based upon your down payment amount as well as your personal credit rating. If you want a guarantee, you need a prequalification.
Prequalified is the process of being preaproved, yet going a step further. The information that you give a mortgage broker is verified and an official agreement is made to finance a home for up to a certain price, as long as a list of criteria are meet. This criteria varies depending upon the exact dollar amount determined, the credit rating of the borrower, as well as the local area. This process guarantees that as long as the criteria is meet, the lender will finance your mortgage, this can be guaranteed because they have already checked your credit file, employment history, as well as financial information. The lender is in a good position to make this offer after verifying the information. A lender is not required to prequalify someone who they do not feel is creditworthy, nor are they required to fund the loan if all of the criteria set forth in the prequalification are not meet. Prequalification typically accompanies minimum standards for the property values, as well as some mortgage companies require certain square foot minimums, or a minimum number of bedrooms etc. Some companies will not honor a prequalification if it is in a neighborhood that they do not approve of, this usually occurs due to rapidly declining property values in certain neighborhoods.
As you can see, a prequalification is much better for the serious buyer, and is looked upon more favorably by a seller. If a seller has two people who are making an offer, one is prequalified and offers $90,000 and the other is preapproved but offering $92,000 the seller is more likely to take the prequalified offer, since that will become a guaranteed sale with less red tape to deal with later down the road. This means the seller will enjoy a much faster closing, as well as the buyer will be able to enjoy the property much sooner.