Purchasing a house can be a stressful process. With the tools available at McLean Mortgage you can easily slip into your home sweet home feeling educated and stress-free. Knowing the difference between a Prequalification and Preapproval will help you plan a budget and secure financing for your dream home.
When shopping for a home and securing financing, it is important to know if you have been prequalified or preapproved as that can make a big difference when putting in an offer for a house. There are many factors that go into getting a home loan, but what are the differences, and why should you take these extra steps in the mortgage process?
A prequalification, or prequal as it is often referred to, is when a lender gains an overview of your financial information. It is always best to discuss finances with a mortgage expert prior to starting your home search because they will be able to evaluate how much you can afford when shopping around. Additionally, they will assess your ability to pay back the loan over time. A prequal is used as an estimate because it is based on a verbal discussion with a mortgage expert. At this point you have not yet provided any physical documentation of debt, income, or assets. Therefore, it is not a deep-dive into your finances.
A prequal will help you gain a better understanding of the loan amount you may be approved for once you are ready to start the process. There is a chance that you may be approved for more or less than what you had originally expected. However, knowing your prequal amount will help you plan a budget and search for houses within your means. Once you’re ready to officially shop around a preapproval is highly recommended prior to writing a contract. It is meant to confirm you will be approved for financing.
A preapproval provides many advantages for buyers. While prequalifying is a good start, obtaining a preapproval is more official and shows you are serious about purchasing. What are some reasons to get a preapproval?
- Easier to shop. Most realtors will make a preapproval a requirement before looking for a home, but knowing exactly what you can afford is an added bonus.
- Makes your offer stronger. With the current highly competitive housing market, a preapproval will show sellers your offer will not fall through. It will show your interest and solidify your offer.
- Gets the bulk of the mortgage process out of the way. With your documents together, the next step is getting your offer accepted and preparing to move.
Every person’s financial profile is different but here are the most common documents your lender will ask for:
- Your most recent income and bank statements detailing a 30 day history
- The last two years of W2’s
- A copy of your license and social security card (or number)
We will verify all other information.
Once your MMC Mortgage Advisor reviews all of your documents and determines your maximum purchase price, he or she will provide you with a preapproval letter.