What separates a loan prequalification from a loan preapproval?
- Knowing the difference between these two important milestones is crucial for understanding how lenders decide who to approve.
- It’s also important for finding out exactly how much a lender can lend you and if you have enough money saved to cover closing costs.
Loan prequalification and preapproval are two distinct steps in the loan application process. While both involve gathering financial information from borrowers, there are several key differences between the two that should be understood before considering either path.
Prequalification is a process where borrowers describe their financial situation and lenders inform them of what loan amount they might qualify for. This provides guidance to buyers since they can plan their budget by determining what mortgages and down payments could fit into their spending budget.
Prequalifying is often done online or over the phone, with interested buyers providing general information about income, debts, assets, and credit scores.
In contrast, loan preapproval is when lenders conduct a more comprehensive evaluation of the buyer’s finances based on submitted documentation like pay stubs, W-2 forms, bank statements and so forth to confirm all provided information during prequalification is accurate.
During this process, it’s possible that dependents or other details weren’t included during prequalification which could change a borrower’s qualifications for the loan requested. At this point, lenders will also select an interest rate that buyers can lock in prior to shopping for a home. This step guarantees funds are ready once the purchase is finalized.
Both processes are required if purchasers want successful outcomes when seeking mortgage financing from banks or lending institutions. Depending on individual qualities such as credit score or debt-to-income ratios, combined with overall financial aspects changing regularly through market fluctuations, it’s wise to check eligibility at least twice throughout the entire process to help ensure desired accommodations are still available when making final decisions involving home purchases.
Don’t let the loan approval process slow you down
Deciding to purchase a home is an exciting step, but one that requires researching the financial aspects of the process. Before committing to a particular mortgage loan, homeowners should understand the difference between loan prequalification and preapproval, as it can save them time and money.
Every loan process begins with prequalification and may or may not move ahead to the next step, preapproval. Getting someone like Kyle Fuller from Factum Financial can make everything less confusing. Understanding the difference between loan prequalification and preapproval can help buyers decide which route helps them in their home-buying process.