Anyone who has gone through the homebuying process knows that there are terms and abbreviations involved that you have never heard of until you start that journey. Terminology in the mortgage business can even change from lender to lender. However, understanding this terminology is important because it will help you make the right decisions when you are trying to buy your home. In this ALLIANCE article, we are going to explore the differences between being prequalified and preapproved.
Prequalification
In most scenarios, prequalification is one of the first steps of the mortgage process. Prequalification usually amounts to an estimate of what a borrower can qualify for. The process is not as rigorous as the preapproval process, but also not as definitive. Lenders will typically rely on self-reported information, and some lenders will check your credit when you are getting prequalified. The prequalification process is important because this also gives you a baseline of information that your lender can use to discuss what type of mortgage options will work best for you. Additionally, that prequalification letter is something that you can show an agent or seller as proof that you are working with a lender. Prequalification is usually a very fast and easy process and is the important first step to buying your home.
Preapproval
Preapproval will happen only after you have submitted a mortgage loan application. At this stage, the lender will verify all the information you have provided and perform a credit check. It will generally require you to provide copies of your pay stubs that show your most recent 30 days of income and W2 statements from the past two years. Additionally, you will be asked to provide bank account numbers or bank statements and the desired mortgage amount. The preapproval process will take more time than getting prequalified. Most lenders will complete this process in a maximum of 10 business days. However, be sure to check with your lender for an estimated time frame. Once you receive your letter of preapproval, you will be able to make an offer on a property with confidence and gain that advantage over any competition. This letter will state the exact type of loan the lender is willing to offer and the total amount of money the loan is for, along with some of the terms. The important thing to remember is that although preapproval is an offer from a lender, it is not a binding contract. Your mortgage will still have to go through the underwriting process and can be subject to tweaks and changes until the final contract is signed. Preapproval letters are generally valid for 90 days and if the process is not finalized in that timeframe, then there is a chance it will have to be done again.
ALLIANCE Home Loan Center
ALLIANCE Home Loan Center is here to help you through the entire homebuying process. Visit us in person at 8401 Quaker Avenue, by phone at 806-798-0991, or visit us online to get started. You can complete the entire home loan process online or in-person at ALLIANCE. If you are looking to get preapproved or prequalified, get in contact with us today!
