What’s the difference between a home loan prequalification and a mortgage preapproval? It’s pretty much the difference between getting a “maybe” and an “almost certainly” in response to a yes or no question.
How prequalification works
When you prequalify for a home loan, the process goes something like this:
- You find a prequalification application online, or a loan officer at a mortgage company or bank gives you one to complete
- You fill in the blanks: employment, income, assets, monthly debt
- You list what you think your credit score is
- The information gets put through an algorithm that crunches the numbers in the data you provided, and spits out a number
That number is an approximate amount of what you “could” be approved for to buy a home, assuming every single piece of information you gave was 100% accurate and you didn’t forget anything or get a number off by even a small amount.
Basically, it’s an educated guess with a lot of leeway. You get a prequalification letter, but anyone who sees it will know it’s based on not much more than your own self-evaluation plugged into a glorified calculator.
Once you find a house and want to put in an offer, you’ll have to go through the actual home loan application process, and every scrap of information you formerly supplied will be gone over with a fine tooth comb. You’ll have to back up every claim with documentation, and the loan officer will pull a hard credit report for a precise credit score.
If there are any surprises or inaccuracies in the original information, or something turns up that you forgot or didn’t know about, like an error on your credit or an old debt, your approval amount could be a lot lower than you expected. That could mean you lose a home you found and set your heart on because you thought you could afford it at the time.
How preapproval works
When you get preapproved for a home loan, the process is much more intensive, but the results are far more concrete and reliable.
- You choose whether to start your application online, or with a loan officer (LO) over the phone
- After completing your loan application, you can upload your documents through a secure online portal
- The LO will verify your information, or hand off your complete file to qualified team member
- Your LO will pull a “hard” credit check to get your current credit report, history, and score
- If there are no red flags, you should get your preapproval letter within a day or two
- The preapproval letter will include a calculated amount based on your verified information
That number is an educated calculation of your estimated budget for house shopping. You can start looking at homes in your price range, and have confidence that the preapproval amount is fairly accurate.
Because the preapproval process is designed to check for red flags before you get to the point of making an offer on a house, sellers feel more confident in a potential buyer who is preapproved over one that is merely prequalified.
If you are house hunting in a competitive market and want an edge it’s easy to take your loan application to the next level: underwriting. Rather than your file being reviewed by a Loan Officer your whole file will go to an underwriter who will look at your income, assets, your credit, etc. They will underwrite everything and approve the file pending property related items such as the appraisal, title insurance and homeowners insurance policies.
An underwritten approval means you have even more of the process completed and it allows you to close more quickly than you could if you went through the standard preapproval process.
Sammamish Mortgage Loan Officers Are Standing By to Preapprove Your Mortgage
Are you ready to get preapproved for a mortgage? Don’t be intimidated by the steps required. We can help make the process as easy and stress-free as possible. Get preapproved today!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.