If you’re in the process of becoming a homeowner, then you’ve probably come across these two terms: preapproved and prequalified when talking about a mortgage. But what do they mean and how could they help you? Let’s break that down here.
What Is A Prequalified Mortgage?
Prequalification is an early step on your journey to becoming a homeowner. You’re getting an estimate for your loan that tells you approximately how much you could borrow. Not only will it allow you to learn about your mortgage options, but also work closely with a lender to find the perfect loan for you.
What Is A Preapproved Mortgage?
Preapproval takes place when you’re close to the end – but with no purchase contract yet in place. After credit checks have taken place, you’ll get an offer through a preapproval letter, which you’ll have some time to consider; specifically, 90 days.
How Do I Decide Which Mortgage Is Right For Me?
For first-time buyers, a prequalified mortgage is usually more helpful because you get an idea of how much can be borrowed. It requires a brief assessment of your income, you can provide the information either digitally or face-to-face, and the amount you’re getting for the loan can change.
Preapproved mortgages, on the other hand, are helpful when making an offer for a house. If all checks are done, the buyer will take you more seriously. This type of mortgage loan is a more thorough assessment of your finances, documents are needed to establish information about income and credit, and the loan amount is more stable as it doesn’t increase or decrease.
How Long Does It Take To Secure A Preapproved Or Prequalified Mortgage Loan?
Both preapproved or prequalified mortgage loans tend to take different amounts of time, depending on whether you do the process online or with a lender. A prequalified mortgage application tends to take more time as you’ll need to give some more information.
Once your preapproved loan has gone through processing and underwriting, you should be able to close the deal in a few weeks.
The Benefits Of Both A Preapproved Or Prequalified Mortgage
The biggest benefit of a prequalified mortgage loan is that you have an idea of how much you can borrow, so you can start to look for a house a lot sooner. With a preapproved mortgage loan, you can make an offer and gain an advantage over other buyers.
The Bottom Line
Both preapproved or prequalified mortgage loans carry their own benefits as they give you an idea of your loan options as well as what you could afford. The biggest difference is that a pre-approved mortgage is a longer process in comparison to a prequalified loan as it needs additional information such as lender verification. Even though it’s not got your final approval, there is a degree of commitment to underwriting this loan.