Understanding Mortgage Prequalification vs. Mortgage Preapproval

By Kristi Shibata
Calculators for Mortgages Columnist

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According to a recent survey conducted by a market research firm, one in eight home purchase closings are delayed due to a mortgage-related issue. Real estate agents and brokers found that many problems arose when mortgage prequalification calculators were not accurate.

What Can Prequalifying Do for You?

Taking the time to get prequalified with a lender can save time during closing and give you an advantage in the housing market. Home buying comes with a lot of paperwork and numbers, and getting prequalified can help you get started on the right track.

A prequalification calculator can estimate how much you can afford to pay. Consider this the preliminary stage of the loan application. You will likely need to have your credit history on hand, as well as verification of you income, assets, and debt. Once all your finances are calculated, you should have a good idea of the type and amount of loan for which you qualify.

How Prequalifying Differs from Mortgage Preapproval

Getting a mortgage preapproved is taking your application one step further. Your lender contacts your banks and employers to verify your financial history. Then they issue you a letter stating that your mortgage is approved for a certain amount. A mortgage preapproval is more appealing to sellers, as this tells them which buyers are already approved.

It's important to make sure your prequalifying calculations are accurate, and that you have accounted for your credit history and related information. Doing this carefully and using a prequalify calculator can save you time and get you one step closer to purchasing your ideal home.  

Sources:

"Prequalified or Preapproved Borrowers Have an Edge," Bankrate.com
"Preapproved? Surprise!" Washington Post




About the Author
Kristi Shibata is a public relations and communication specialist. She graduated from University of California, San Diego, with a BA in Communications.