If a new home is in your future, you might be thinking, “What’s the primary benefit of being prequalified for a mortgage?”
The short answer is knowing how much of a mortgage you could be eligible to receive; how much you could afford to spend on a new house.
House hunting is that much easier when you know your budget and don’t waste time looking at homes that are out of your price range.
Let’s look at the difference between prequalified and preapproved, what you need to get prequalified, and how you can take the next step in your home buying process.
What is the difference between prequalification and preapproval?
When it comes to mortgages, the words preapproved and prequalified might sound like the same thing. But despite sounding similar, they each play a different role in your home-buying journey.
What is mortgage prequalification and what does it mean to be prequalified?
Prequalified means you’ve been prescreened by a mortgage lender and have received a mortgage estimate.
Mortgage prequalification is a simple, straightforward way to jumpstart your home-buying process. Prequalification usually only requires potential borrowers to submit a brief application or hop on a quick phone call with a licensed mortgage lender.
For mortgage prequalification, your lender will ask for basic financial information before quickly assessing your situation and providing their estimate.
The mortgage lender then gives you information about mortgage options, including an estimated price range to buy a home.
Prequalification is the first step toward buying a house, and it’s a much simpler process than preapproval.
What is mortgage preapproval and what does it mean to be preapproved?
When you’re preapproved, a lender has reviewed your mortgage application and has checked your credit history and score. Based on the information, they’ll give you an estimate of how much they’re willing to lend you for a mortgage. It’s not always guaranteed but it’s a good starting point with which to search for a house.
Mortgage preapproval is a more detailed review of your creditworthiness compared to mortgage prequalification. It’s an official offer from a lender for the funds to buy a home. The preapproval amount is what they’re prepared to offer you for a mortgage, though not an official loan commitment.
Many sellers no longer accept an offer to buy without a mortgage preapproval letter attached.
Your mortgage preapproval letter lets sellers know that a lender has verified your finances and that you’re serious about buying a house. It also tells sellers you can afford to complete the purchase.
The mortgage preapproval letter outlines the maximum amount a specific lender is willing to let you borrow.
Preapprovals are generally conditional offers and remain valid for up to three months—provided your financial, credit score, and employment situation remains unchanged.
Do I need to be prequalified to buy a home?
Prequalification is an important first step toward buying a home, even though it isn’t an official guarantee of mortgage approval.
Prequalification estimates the mortgage amount you can expect to receive—knowing your home buying price range is essential to finding homes that you can safely afford.
There’s no obligation with prequalification; if your estimate doesn’t match your expectations, you can take time and improve your financial situation.
For example, improving your credit score or saving for a larger downpayment could mean qualifying for a larger mortgage.
What information is needed for prequalification?
Prequalification requires some basic financial and personal details, such as
- Your name and date of birth
- Your address and phone number
- Employment and income information
- Information about how much debt you have (student loans, credit cards, etc.)
- The ZIP code of the area you’re hoping to buy in
To complete your prequalification, your mortgage lender will make a “soft inquiry” into your credit file, (your credit score isn’t affected by a soft inquiry) and provide a mortgage estimate.
How long does it take to get prequalified for a mortgage?
Because mortgage prequalification is an informal, nonbinding assessment of your financial information, most borrowers can get pre-qualified within a couple of days of completing an online application.
How do I start the process of getting prequalified?
Getting prequalified for a mortgage is easy.
First, gather the basic financial information listed above and then reach out to a lender. Most mortgage lenders have online applications that make the process even easier.
If you’re reaching out by phone, a loan officer will walk you through the process and answer any questions about prequalification, mortgages, or other parts of the home buying process.
At AAA Banking, you can reach our loan officers directly by calling (844) 878-4764, Monday through Friday, from 8:00 am to 8:00 pm EST.
Preapproval vs. prequalification, which one do I need?
Both preapproval and prequalification can help borrowers make smart choices when buying a home.
- Offers a brief examination of your eligibility using the information you provide
- Requires a soft credit check
- Prequalification is not an official offer to loan money
Mortgage prequalification is ideal for early-stage home buyers looking to better understand what they can safely afford and which loans might work best for their situation.
- Offers an in-depth examination of your mortgage eligibility using the information you provide, plus supporting documentation (such as W2s or tax returns)
- Requires a hard credit check
- Preapproval is an official offer to lend you money, usually valid for 90 days
Mortgage preapproval is ideal for borrowers looking for an official offer from a lender, an estimate of the maximum amount a lender will let them borrow, or a more realistic expectation of what mortgage payments might be.
Mortgage preapproval is also perfect for anyone actively looking at homes and wants to be able to make an offer as soon as they find the perfect house.
Get prequalified with AAA Banking
Getting prequalified for a mortgage can help you estimate your home-buying budget and determine what loan options might be beneficial for your situation.
Mortgage preapproval can also mean peace of mind knowing you can make an offer on your dream home when you find it. You don’t need to wait anxiously while your application is processed, hoping someone else won’t swoop in and buy your home.
Where ever you are in your home buying journey, we can help.
If you’re buying your first home, you might have questions about which loan option is best for first-time buyers.
At AAA Banking, we offer several loan products, including FHA home loans, which can be ideal for first-time buyers. And our Homescout program helps connects buyers with real estate agents in your area.
If you’re an experienced home buyer hoping to reduce your monthly mortgage payments through refinancing, we’d love to hear from you. Start your application online for a conventional or cash-out refinance.
Photo by Mikhail Nilov