Are you Prequalified or Preapproved?
The loan preapproval process and the prequalification process are often confused or incorrectly assumed to be the same thing.
Prequalification is when you call or meet with a Mortgage Professional and tell them what your income, savings, debts and general credit look like. From that, they can give you an approximate price range that you will qualify for. This is helpful because it gives you an idea what price range of homes you should be looking for. Also, it does not affect your credit score because the Mortgage Professional will not typically pull your credit report (which can lower your score).
If you’re not planning to write an offer anytime soon, a prequalification will get you started with a ballpark idea of price.
The negative to a prequalification is that most sellers will require a Preapproval be submitted with your offer. Be careful because a prequalification can also give you an incorrect idea of possible purchase price since your documentation has not been verified.
Every time your credit is pulled during a home purchase, you’ll be required to explain that you are not creating any new debt.
Preapproval is almost always going to be required when you submit an offer. It happens when your Mortgage Professional has documentation of the following items:
- Completed loan application that’s been reviewed by an underwriter.
- Documentation of income with pay stubs and W2s or possibly tax returns for the last two years.
- A credit report. You’ll have to give written authorization for them to pull your credit report.
- Documentation of savings and cash available to you. This would be from bank accounts, 401k and retirement accounts, as well as investment accounts.
- Possibly documentation of gift funds if they will be used.
- An explanation of any odd things like lapses in employment or variations in income.
The loan preapproval process can take anywhere from one day to one week so plan accordingly. This may seem like a whole lot of paperwork to dig up and info to provide, but remember your lender will be deciding whether or not to loan you many thousands of dollars!
Thinking of buying a home in the Portland, Oregon area? Checkout our First Time Home Buying Classes!Loan Prequalification vs Preapproval,
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