You’ll have an advantage with sellers if you can show them you’ve already taken steps to make sure you can get a mortgage and afford their home. You can get prequalified or preapproved for a home loan – but these terms are not synonymous. Here’s the difference between prequalifying for a mortgage and being preapproved for one.
Getting prequalified for a loan is simple. You provide the lender with basic information about your income, debt, and assets, and the lender gives you an idea of the loan amount you could qualify for. This process is usually free and can be done over the phone or online. There’s no credit check and no in-depth look at your finances.
Getting prequalified carries no commitment from the lender; it is merely an idea of the size mortgage you may qualify for. It doesn’t carry the same weight as being preapproved for a home loan.
Getting preapproved requires more effort on you part. You will fill out a mortgage application and provide the lender with the documentation it requires to research your finances. In return, the lender will tell you exactly how much mortgage you qualify for and give you a conditional commitment in writing. You’ll also have more information about the kind of interest rate you could get on your loan.
Sellers like preapproved buyers because they know exactly what the buyer can afford, and the buyer is one step closer to being approved for a home loan.