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What is pre-approval and prequalification?
Home » Real Estate » Obtaining Financing for a House » What is pre-approval and prequalification?Before you start shopping for a house, you should find out how much money you can borrow to buy a home.
Getting yourself pre-qualified for a mortgage is different from getting pre-approved. When you get pre-qualified, a lender takes your assets, debts and income, puts them through a formula and comes up with an estimate of what you should be able to borrow. When you get pre-approved you will need to produce documents to back up the numbers you give the lender. The lender will study your credit report and commit a certain loan amount to you, which is not dependent on any specific house.
Getting pre-qualified is less of a hassle, there's no particular time limit for purchasing the house and you're not out any money if you decide not to borrow from that lender. So if you think you might be house-hunting for several months or a few even years, prequalification may be the best way to get a handle on what you'll be able to spend.
Once you're ready to buy, applying for a pre-approved loan can make the process of buying a house faster and easier. Not only do you know exactly what you can borrow, you may also have an advantage if you have to compete with another buyer over a particular house. The seller is likely to favor the bidder who has their financing secured.
Whatever you decide, the important thing is finding out from the start how much you can afford to borrow.
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