Have you ever wondered what it meant to be preapproved or prequalified for mortgages? You may have just assumed that those terms were interchangeable, but they’re not. Before you rush out to find your next home, thinking that you’ll have no trouble getting the funds together, take the time to learn how these terms differ and what to expect from the bank.
What Does Each Term Mean?
Being prequalified for a mortgage means that you’ve submitted information on your income, debt, and assets and from that information the bank has determined the amount of money you should qualify for. However, this is not a detailed process that will give the bank the big scoop on your credit. It’s only the first step in determining if you can get a mortgage. The next step is getting preapproved. During the process you will pay an application fee, a credit check will be done, and your finances will be scrutinized. In some cases, you will qualify for a much larger loan than you are actually approved for.
What’s the Difference in Preapproved and Prequalified?
Put simply, the difference between the two is the amount of information the bank has to go on. Being prequalified means that the information you provided has given the bank an idea of the amount of mortgage they feel you could afford. Being preapproved means that the bank has made a definite answer on whether or not they will give you a mortgage and an exact amount of how big of a mortgage you can take.
Why Are These Terms Used?
Think of these terms as steps. Before you can get preapproved for a lona, you must be prequalified. Taking the time to determine if you can get prequalified can save you a lot of heartache down the road. Just remember that this term doesn’t mean you will get approved. It simply gives you an idea if there’s a chance of getting the mortgages you want. If you’re serious about buying a home, take the time to complete both steps before doing any serious house hunting.
Under no circumstances does being prequalified for a mortgage mean you’ll get a home loan. It also doesn’t mean you’ll get as much of a home loan as you qualified for. If you want the whole truth, you’ll need to get preapproved which will mean filling out an application and providing quite a bit of paperwork to the bank. However, taking the time to do so can help ensure that when you do find the right home, you’ll be able to move quickly and confidently when making your first offer.