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What are the benefits of mortgage prequalification and preapproval?

Home » Real Estate » Mortgage Prequalification and Preapproval » What are the benefits of mortgage prequalification and preapproval?

Prequalification and preapproval streamline the entire home buying process. Here's how:

• They save time: If you know how much money you have to spend on a house, you won't waste time looking at houses far above your price range. Instead, you'll focus on differentiating between the homes that you can afford.
• They're a bargaining chip: Sellers love buyers who are prequalified and preapproved because they know they'll come through with the money. Thus, you stand out from other borrowers.
• You get a faster closing: If you're preapproved for a loan, you've already done the application process so the closing on your home is streamlined and you get to move in quicker (which is particularly nice if you're selling your current home at the same time).
• You have increased confidence: You don't have to worry about what might show up on your credit report or whether you can actually get the loan for the price you're bidding. Preapproval (though not prequalification) has virtually guaranteed that. This confidence can be especially helpful for non-traditional borrowers such as first-time buyers (i.e. buyers with no equity) and self-employed borrowers with income that is difficult to prove.

In general, mortgage preapproval is better than mortgage prequalification. Preapproval demonstrates that your finances have been verified and thus your loan amount is fairly certain. You become a confident borrower with a very strong bargaining chip.

A final advantage of prequalification and preapproval, however, is that there's no real commitment with either one. Preapproval does entail filling out a loan application and paying a fee, but even with preapproval, you are not forced to take out a loan. Thus, you can begin searching for homes with the knowledge that you can get a loan but without the pressure of needing to pay back a loan.

Next Page: How do I get prequalified and preapproved for a mortgage?

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