If you’re considering the purchase of a new home, you may be concerned with the issue of finance. Attaining the right mortgage is a key step in the home buying process, but it doesn’t have to be a stress-inducing one. Most lenders offer prequalification, pre-approval or both to help you know where you stand. Let me explain the difference between prequalification and preapproval:
Prequalification: Prequalification is a preliminary estimate of how much you can afford to pay for a home based on information you provide. Because credit and employment information aren’t validated for prequalification, it can only be considered a rough idea of a monthly mortgage payment and loan size. This can be a useful guide as you begin the home buying process, however.
Preapproval: Preapproval is a written commitment from a lender to finance your home purchase up to a set amount. This indicates that the lender has taken a close look into your financial history and has agreed to lend you a specific amount of money, reliant on certain details like a finalized sales contract and professional inspection. Pre-approval indicates to sellers that you are a serious homebuyer.
I recommend you take both steps and you’ll be able to shop with much more confidence. Why wait until you find the perfect home to discover problems with obtaining a mortgage?