As you embark on your homebuying quest, you’ll hear a lot of unfamiliar terms floating around. For example, you’ll probably hear that a mortgage preapproval is a must-have. Someone else might tell you that getting prequalified for a mortgage is an easy, no-fuss process.
What is the difference between being preapproved and prequalified? Are these words used interchangeably in the mortgage world?
Here’s the deal: Being prequalified and preapproved for a mortgage are different processes. They both have their place, but you must understand the differences to avoid taking the wrong road on your homebuying journey.
Mortgage Prequalification vs. Preapproval: Understanding the Difference
A mortgage prequalification uses basic financial information to evaluate how much you can borrow to purchase a home. Since this number is usually generated by self-reported data, think of it as a rough estimate. Your actual mortgage amount might vary quite a bit from your prequalification amount.
A mortgage preapproval is a little more official. You’ll need to produce pay stubs, tax returns, and other financial documents to help the lender determine a more accurate mortgage amount.
Mortgage preapprovals are more involved than prequalifications, but they are worth the effort. Your real estate agent will probably require you to go through the mortgage preapproval process because it shows the seller that you are a serious buyer with the financial resources to complete the transaction.
Back to Prequalifications: Are They Necessary?
A mortgage prequalification isn’t necessary for all buyers, but the process has certain benefits. Here are a few reasons why you might want to consider a mortgage prequalification:
- Prequalification is an early step to help you narrow down your homebuying budget.
- The prequalification process will educate you on loan options that match your situation.
- Based on the results, your prequalification will allow you to correct financial shortfalls that might impact your official loan application.
Contact Us Today!
Are you wondering if you should get prequalified for a home loan or skip ahead to a preapproval? Contact MortgageDepot today to learn more about the differences between these loan-related processes.
Connect with one of our loan consultants for more information.
