There are many steps in the journey to homeownership. While you might be dreaming about searching home listings and attending open houses, keep in mind that many of the steps in the process revolve around finding the right financing for your home purchase. Understanding the difference between prequalification and preapproval can help you move forward effectively as you work to identify and secure the best home loan for your needs.
The Difference Between Prequalification and Preapproval
What is the difference between prequalification and preapproval? As Investopedia explains, prequalification and preapproval have a lot in common. Both are early steps in the home loan process that involve a lender reviewing an aspiring borrower’s financial situation and offering an estimate on the type and size of loan for which they might qualify. Both processes result in a letter stating what the borrower has been either prequalified or preapproved for, and neither process is a guarantee that the prospective borrower will actually secure the loan.
What makes them different? The depth of the review is what separates a prequalification from a preapproval. While the exact requirements for prequalification and preapproval vary from lender to lender, prequalification is typically quicker and easier. In most cases, the lender uses information that a potential borrower provides and offers an answer fairly quickly. In contrast, a preapproval involves completing an application and providing documentation. There is more paperwork involved and it tends to take a bit longer, but it gives the borrower a serious head start on applying for a mortgage. After all, the information and documentation required for the preapproval process is basically the same data that will be needed for a mortgage application.
Why Get Prequalified?
Why get prequalified? As Credit Karma points out, prequalification offers some nice benefits. If there are any credit issues that need to be fixed before you apply for a loan, prequalification will reveal them. You’ll also walk away with a better idea of what a lender is likely willing to lend to you, which can help you determine if your budget is realistic.
Why Get Preapproved?
Why get preapproved? As NerdWallet indicates, you’ll enjoy all the benefits of getting prequalified if you opt to get preapproved and you’ll enjoy a few additional advantages as well. For example, getting preapproved jump-starts your mortgage application. After all, you’ve already completed a lot of the work necessary to apply for a home loan. It also offers proof to real estate agents and sellers that you’re a serious buyer who is financially ready to make a home purchase. This can make your offer more appealing to sellers and might give you the edge you need to secure your desired home. Keep in mind that you don’t have to get prequalified before you get preapproved.
What About Your Credit Score?
If you’re preparing to look for a mortgage, you’ve probably been warned about the importance of protecting your credit score. After all, a higher credit score improves your chances of scoring the loan that you want. It also ups the odds when it comes to snagging a low interest rate, and even a slightly lower interest rate can help you rack up significant savings over the decades-long lifespan of a home loan.
What impact do prequalification and preapproval have on your credit score? According to Experian, the answer is none. Yes, credit checks have the potential to temporarily lower your credit score, and a credit check may be part of the prequalification process and is normally part of the preapproval process. However, not all credit checks are the same. While a hard inquiry can dent your credit score, a soft inquiry won’t have any impact. Any credit check performed during a prequalification or preapproval will be a soft inquiry, so there’s no need to worry about your credit score.
Are you hoping to get prequalified or preapproved soon? PrimeLending of Denver can help. We deliver friendly expertise, transparency, and excellent service that gets the job done. To discover how we can help you make your housing dreams a reality, contact us today.