Pre-qualified vs. Preapproval When Buying a Home
Pre-qualified and preapproval are terms often used when purchasing a home. While they sound similar, they have different meanings and implications in the home-buying process.
What are the differences?
A prequalification is an informal assessment of your financial situation and gives you a rough idea of how much you might be able to borrow. It is based on information that you share with a lender, like your creditworthiness and how much you’ve saved for a down payment. While the prequalification gives you an estimate of the mortgage amount you may qualify for, it is not a guarantee that you will be approved for a mortgage loan.
A preapproval is a more formal process where a lender reviews your financial information, checks your credit report, and provides a written commitment regarding the amount they will lend to you. A preapproval is a stronger sign to sellers that you are a serious and qualified borrower since it involves an in-depth analysis of your finances. However, it’s important to note that even with preapproval, final approval is contingent upon factors like the property appraisal.
What information do you need to provide?
For both a pre-qualification and a preapproval, you need to provide the same information. The difference is the level of detail and the amount of documentation you need to provide.
Here’s a comparison:
|Basic income provided verbally
|Documented (paychecks or 1099s)
|Credit score provided verbally
|Credit report with official scores
|Savings provided verbally
|Bank and investment statements
|No tax information required
W-2s and personal or business tax returns from previous 2 years
Which is right for you?
For any homebuyer, but especially for first-time homebuyers, a preapproval is the best way to learn your maximum mortgage loan amount. Your preapproval also positions you as a serious buyer, especially in a competitive market. Since a preapproval is a crucial step to buying a home, get your preapproval at the beginning of your homebuying journey.
Texell’s Home Loan Heroes Are Ready to Help
If you need help navigating the preapproval or home buying process, our mortgage team is ready to help. They’ll walk you through the steps and explore mortgage options to find the home loan that best fits your needs. Visit TexellHomeLoans.com or call or text 254.774.5104 to get started on your home loan today.
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